Dr. Millie Metrics is preparing a class example for her econometrics course. She

Question

Dr. Millie Metrics is preparing a class example for her econometrics course. She has no data on hand to demonstrate a particular point so she creates some data using the following Stata commands. Note this is not a question about understanding Stata commands. They are explained below. She uses this method to generate 60 observations of Y and X. In class she will start her lecture by regressing Y on X. What is her lecture about? What test will she employ to sec whether the .6 in the b equation is significantly different from zero? Explain and describe that test.

Explanation / Answer

The lecture talks about regression of X on Y, i.e. it shows how values of Y are dependent upon X.

The test used to see whether 0.6 in the b-equation is statistically different from 0 (i.e. statistically significant) is the t-test. The t-test is used to determine whether the observed values are statistically significant, and whether the null hypothesis is acceptable or not.

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