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Ch 3 Two Variable Analysis & Estimation

The document discusses two-variable analysis in regression models, focusing on estimating the population regression function using methods like ordinary least squares (OLS) and maximum likelihood (ML). OLS, attributed to Carl Friedrich Gauss, is favored for its simplicity and ability to minimize the sum of squared residuals, providing unbiased estimators for coefficients. The statistical properties of OLS estimators include ease of computation from observable quantities and the provision of point estimates for population parameters.

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Ehtsham Ul Haq
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12 views

Ch 3 Two Variable Analysis & Estimation

The document discusses two-variable analysis in regression models, focusing on estimating the population regression function using methods like ordinary least squares (OLS) and maximum likelihood (ML). OLS, attributed to Carl Friedrich Gauss, is favored for its simplicity and ability to minimize the sum of squared residuals, providing unbiased estimators for coefficients. The statistical properties of OLS estimators include ease of computation from observable quantities and the provision of point estimates for population parameters.

Uploaded by

Ehtsham Ul Haq
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Chap 03:Two Variable Analysis:

Regression Model

• Our first task is to estimate the population regression


function (PRF) on the basis of the sample regression
function (SRF) as accurately as possible.
• wo generally used methods of estimation: (1) ordinary
least squares (OLS) and (2) maximum likelihood (ML).
• By and large, it is the method of OLS that is used
extensively in regression analysis primarily because it is
intuitively appealing & mathematically much simpler than
the method of maximum likelihood.
Ordinary Least Square Method: OLS
• The method of ordinary least squares is attributed to Carl Friedrich
Gauss, a German mathematician.
• By definition: A Regression technique which is used to
estimate/find best-fitted line that minimizes the sum of square of
residuals/error between observed data points and the predicted
values in a linear regression model.
• It is widely use in linear regression to estimate the relationship
b/w variables by choosing parameters that minimize error,
providing us unbiased estimators for coefficient like B1 , B2 etc.
Ordinary Least Square Method: OLS
• To understand this method, we first explain the least squares
principle.
Ordinary Least Square Method: OLS
• Now given n pairs of observations on Y and X, we would like to
determine the SRF in such a manner that it is as close as possible
to the actual Y.
• To this end, we may adopt the following criterion: Choose the SRF
in such a way that the sum of the residuals uˆ i = (Yi - Yˆi) is as
small as possible . (BUT WE CAN’T)
• We may take square of residual , (BUT WE CAN’T)
• Then What ?
• Sum of Square of Residual.
OLS Estimations:
Statistical Properties Of OLS Estimators
• Under certain assumptions the method of least squares has some very
attractive statistical properties that have made it one of the most
powerful and popular methods of regression analysis.
• I. The OLS estimators are expressed solely in terms of
the observable (i.e., sample) quantities (i.e., X and Y).
Therefore, they can be easily computed
• II.These are point estimators; that is, given the
sample, each estimator will provide only a single (point)
value of the relevant population parameter.
• III. Once the OLS estimates are obtained from the
sample data, the sample regression line can be easily
obtained.

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