Conditions for Least Squares Estimation
Regression analysis is a powerful and flexible technique that we can reliably apply under certain conditions. Given a data table with continuous X-Y pairs we can always use the ordinary least squares (OLS) method to fit a line and generate results like those we saw in Chapter 13. However, if we want to draw general conclusions or use an estimated regression equation to estimate, predict, or project Y values, it is critical that we decide whether our sample data satisfy the conditions underlying OLS estimation.
Recall that the linear regression model is
where Yi and Xi, are the observed values for one case, ...
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