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R. Carter Hill - Principles Of Econometrics, 5Th Edition

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Principles of Econometrics, Fifth Edition, is an introductory book for undergraduate students in economics and finance, as well as first-year graduate students in a variety of fields that include economics, finance, accounting, marketing, public policy, sociology, law, and political science. Students will gain a working knowledge of basic econometrics so they can apply modeling, estimation, inference, and forecasting techniques when working with real-world economic problems. Readers will also gain an understanding of econometrics that allows them to critically evaluate the results of others economic research and modeling, and that will serve as a foundation for further study of the field. This new edition of the highly-regarded econometrics text includes major revisions that both reorganize the content and present students with plentiful opportunities to practice what they have read in the form of chapter-end exercises.--

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Table of Contents
List of Tables
  1. Chapter 1
  2. Chapter 1a
  3. Chapter 2
  4. Chapter 3
  5. Chapter 4
  6. Chapter 5
  7. Chapter 6
  8. Chapter 7
  9. Chapter 8
  10. Chapter 8
  11. Chapter 10
  12. Chapter 11
  13. Chapter 11
  14. Chapter 14
  15. Chapter 15
  16. Chapter 16
  17. Appendix A
  18. Appendix B
  19. Appendix C
  20. Appendix D
List of Illustrations
  1. Chapter 1
  2. Chapter 1a
  3. Chapter 2
    1. FIGURE 2.7 (a) The relationship among y, e, and the fitted regression line. (b) The residuals from another fitted line.
  4. Chapter 3
  5. Chapter 4
  6. Chapter 5
  7. Chapter 6
  8. Chapter 7
  9. Chapter 8
  10. Chapter 9
  11. Chapter 10
  12. Chapter 11
  13. Chapter 12
  14. Chapter 13
  15. Chapter 14
  16. Chapter 16
  17. Appendix A
  18. Appendix B
    1. FIGURE B.7(b) Non-central chi-square distributions, m = 10 degrees of freedom and non-centrality =0, 3, 6.
    2. FIGURE B.9(b) Non-central F(8, 20, )-distributions with =0,3,6.
  19. Appendix C
    1. FIGURE C.2 Increasing sample size and sampling distributions of Y.
    2. FIGURE C.5 The rejection region for the one-tail test of H0:=c against H1:>c.
    3. FIGURE C.6 Critical value for one-tail test H0:=c versus H1:
    4. FIGURE C.7 Rejection region for a test of H0:=c against H1:c.
Guide
Pages
Appendix A
Mathematical Tools

LEARNING OBJECTIVES

Based on the material in this appendix, you should be able to

  1. Explain the relationship between exponential functions and natural logarithms.
  2. Explain and apply scientific notation.
  3. Define a linear relationship, as opposed to a nonlinear relationship.
  4. Compute the elasticity at a point on a function.
  5. Explain the concept of a derivative and its relationship to the slope of a function.
  6. Compute the derivatives of simple functions and provide their interpretations.
  7. Describe the relationship between a derivative and a partial derivative.
  8. Explain the concept of an integral.
  9. Maximize or minimize functions of one or two variables.
  10. Use integration to find the area under curves.
  11. Explain and evaluate second derivatives.
KEYWORDS

maximizing a function

minimizing a function

We assume that you have studied basic math. Hopefully you understand the calculus concepts of differentiation and integration, though these tools are not required prerequisites for success using this book. In this appendix we review some essential concepts that you may wish to consult from time to time.

A.1 Some Basics
A.1.1 Numbers

can be represented by points on a line. There are an uncountable number of real numbers, and they are not all rational. Numbers such as 3.1415927 and 2 are said to be irrational since they cannot be expressed as ratios, and have only decimal representations. Numbers like 2 are not real numbers. The of a number is denoted by |a| . It is the positive part of the number: |3| = 3 and |3| = 3 .

among numbers obey certain rules. The notation a < b , a is less than b, means that a is to the left of b on the number line, and that b a > 0 . If a is less than or equal to b, it is written as ab. Three basic rules are

Ifa0ac>bcifc<0Ifa
A.1.2 Exponents

are defined as follows:

xn = xxx (n terms) if n is a positive integer

x0 = 1 if x 0 . 00 does not have meaning and is undefined.

Some common rules for working with exponents, assuming x and y are real, m and n are integers, and a and b are rational, are as follows:

xn=1xnifx0.For example,x1=1xx1/n=xn.For example,x1/2=xandx1/2=1xxm/n=x1/nm.For example,84/3=81/34=24=16xaxb=xa+b,xaxb=xabxya=xaya,(xy)a=xaya
A.1.3 Scientific Notation

is useful for very large or very small numbers. A number in scientific notation is written as a number between 1 and 10 multiplied by a power of 10. So, for example: 5.1 105 = 510, 000 , and 0.00000034 = 3.4 107 . Scientific notation makes handling large numbers much easier, because complex operations can be broken into simpler ones. For example,

510,0000.00000034=(5.1105)(3.4107)=(5.13.4)(105107)=17.34102=0.1734

and

510,0000.00000034=5.11053.4107=5.13.4105107=1.51012

Computer programs sometimes write 5.1 105 = 5.1E5 or 5.1D5 and 3.4 107 = 3.4E7 or 3.4D7 .

A.1.4 Logarithms and the Number e

Logarithms are exponents. If x = 10b, then b is the . All logarithms in this book are natural logarithms. We express the natural logarithm of x as ln(x),

For any positive number, x > 0,

elnx=explnx=x

and

lnex=x

Note that ln (1) = 0 , using the laws of exponents. gives the logarithms of some powers of 10. For example, e2.3025851 = 10 and e4.6051702 = 100 .

Some Natural Logarithms

xln(x)
10
102.3025851
1004.6051702
1,0006.9077553
10,0009.2103404
100,00011.512925
1,000,00013.815511

Note that logarithms have a compressed scale compared to the original numbers. Since logarithms are exponents, they follow similar rules:

lnxy=lnx+lnylnx/y=lnxlnylnxa=alnx

For example, if x = 1000 and y = 10, 000 , then

ln100010,000=ln1000+ln10,000=6.9077553+9.2103404=16.118096

What is the advantage of this? The value of xy is a multiplication problem, which by using logarithms we can turn into an addition problem. We need a way to go backward, from the logarithm of a number to the number itself. By definition,

x=elnx=explnx

When there is an , because we can recover the value of x using it. Then,

100010000=exp16.118096=10,000,000

You will not be doing many calculations like these, but the knowledge of logarithms and exponents is quite critical in economics and econometrics.

A.1.5 Decimals and Percentages

Suppose the value of a variable y changes from the value y = y0 to y = y1 . The difference between these values is often denoted by y = y1y0 , where the notation y is read change in y, or delta-y. The in y is defined to be

(A.1) relative changeiny=y1y0y0=yy0

For example, if y0 = 3 and y1 = 3.02 , then the relative change in y is

y1y0y0=3.0233=0.0067

Often the relative change in y is written as y/y , omitting the subscript.

A relative change is a decimal. The corresponding in y is 100 times the relative change.

percentage changeiny=100y1y0y0=%y

If y0 = 3 and y1 = 3.02 , then the percentage change in y is

%y=100y1y0y0=1003.0233=0.67%
A.1.6 Logarithms and Percentages

A feature of logarithms that helps greatly in their economic interpretation is that they can be approximated very simply. Let

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