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Regression for Economics by Shahdad Naghshpour

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Appendix A

Regression Assumptions

Need for Assumptions

This appendix explains necessary assumptions about error term in regression analysis and addresses other important issues that are essential for correctness of the results. In order to be able to use theories in statistics to perform statistical analysis, it is necessary to adhere to the rules that govern those theories or are prerequisite for their validity. The assumptions that are listed and discussed below are necessary for validity of inferences. The proofs of their contribution to the theory and the validity of the conclusion are left for specialty textbooks. However, before addressing the assumptions, let us change the notation of equation (1.9)

C = β0+ β1Y + ε(A.1)

to a more generic ...

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