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ECS3706 Assignment 2 (COMPLETE ANSWERS) Semester 2 2024 (399706)
ECS3706 Assignment 2 (COMPLETE ANSWERS) Semester 2 2024 (399706)
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, ECS3706 Assignment 2 (COMPLETE ANSWERS)Semester 2 2024 (399706) - DUE September
2024 ; 100% TRUSTED Complete, trusted solutions
and explanations.
1. Explain why econometricians must know and understand the
classical linear regression assumptions. (4)
Econometricians must know and understand the classical linear
regression assumptions because:
2. Validity of Estimates: The classical linear regression
assumptions, such as linearity, independence,
homoscedasticity, and normality of errors, are crucial for
ensuring that the Ordinary Least Squares (OLS) estimates are
unbiased, efficient, and consistent. Understanding these
assumptions helps econometricians ensure that the estimates
derived from their models are reliable and valid.
3. Inference Accuracy: Knowledge of these assumptions
allows econometricians to correctly perform hypothesis
testing and construct confidence intervals. Violations of
assumptions can lead to incorrect conclusions about the
relationships between variables and the significance of
predictors, impacting decision-making and policy
recommendations.
4. Model Diagnostics: Understanding the assumptions helps
econometricians in diagnosing and addressing potential
issues in their models. If the assumptions are not met, they
can identify the problems, such as autocorrelation or
multicollinearity, and apply appropriate remedial measures to
improve model performance.
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