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Data

Unrestricted Model. Data. Theory. t-statistics. Restricted Model (excludes independent variables with low t-stats). F-statistic. Unrestricted Model. Data. Theory. Examine t-statistics. Restricted Model (excludes independent variables with t-stats below critical-t).

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Data

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  1. Unrestricted Model Data Theory t-statistics Restricted Model (excludes independent variables with low t-stats) F-statistic

  2. Unrestricted Model Data Theory Examine t-statistics Restricted Model (excludes independent variables with t-stats below critical-t) lower the critical-t F-statistic F>Fcritical => reject H0 F<Fcritical => do not reject H0 Finished Model

  3. Unrestricted Model Data Theory • Are t-statistics • correct? Test for • multicollinearity • heteroskedasticity Restricted Model (excludes independent variables with t-stats below critical-t) lower the critical-t F-statistic with H0: excluded variables do not belong in model F>Fcritical => reject H0 F<Fcritical => do not reject H0 Finished Model

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