[Speaker 1]

This is chapter. Two in green. So, if you're planning to read read chapter 2 in
green. Normally, the first lecture, i do a little bit of Review or do some practice
problems of basic econometrics since the first picture as fast. So i'm going to
start from, you know, straight hardcore, multiple linear regression, so multiple
Multiple linear regulation again. I'll go super slow. You stop me any time you're
not comfortable, right? Um, That is a monolu will be looking at multiple linear
regression model and we are familiar with it. But this is just something going to
be a little bit. More complicated because we use metric cellular. It's not coming
up right away, but it will be coming up sooner. So x, i 1 beta one. Take side tube
beta 2. And {dot} {dot}. XIK beta k. Um, Plus ui. And i goes from one to n. In this
case, Right. So Why, what do we call? Why? What is the name of the why? Dependent
variable. Very good. Dependent variable. What about the year? What do we call the
year error term? Excellent. Um, what else we have beta? What is the beta,

[Speaker 2]
Okay?

[Speaker 1]
Model parameters, will say Efficients or otherwise. All right. And then what else
we have? Next ik are Um, independent variables. Independent. And Variables, in this
case, All right. All right. Now that is And k is the number of regressors, okay?
For a number of independent failures. Have. Ever thought.

[Speaker 3]
Why? This model is linear.

[Speaker 2]
Why

[Speaker 4]
Is the model linear that is protecting the straight line, you know?

[Speaker 1]
So Way is going to mx plus c. So it is So, when you take the Derivative of yi. With
respect to xi 1. It equals. Made. I want. So, there was y-i with respect to x. I 1
is beta 1, is that correct?

[Speaker 2]
Yes.

[Speaker 1]
So what are the linear model? Give you?

[Speaker 2]
If

[Speaker 1]
X i changes by one unit, then the effect will be a constant number. Right. So

[Speaker 3]
Like it easy to interpret.

[Speaker 1]
Right, it's very easy to interpret like likewise. Um, that there was Of why i with
respect to x, i k equals beta k. All right, so that that is the main that makes our
life easier but normally the model is this. Normally, the model is Why i equals
expectation of why i condition on x. I 1.xi k. Of plus, We why? All right. This is
a conditional main model.
[Speaker 2]
Okay,

[Speaker 1]
So when you run a regression, Your regression isn't called here. Okay, so your your
model. You're actually modeling the conditional me. This is the conditional me,
right? Conditional meat. Right? I'm professor. What does that mean? I don't
understand. Now, conditional mean means you have all these data points. Because
this is regression now, okay? You can forget about like university. So you have x
and y, and you have data points like this. Okay, so they have my data points are a
little strained

[Speaker 2]
With

[Speaker 1]
This is the data points, okay? And then the conditional need is like the average or
the mean of this data points. And we assume, The conditional mean. The conditional
mean is a linear. Model. Okay. This is the conditional memo

[Speaker 2]
Okay. We'll talk about

[Speaker 1]
The assumptions now, but it is also possible that why i could be m of x. I 1 x i2
xi3 dot dot x. I k plus ui where we don't know the functional form.

[Speaker 2]
All right, so

[Speaker 1]
This is M has an unknown functional form. Again, this thing is, the conditional
mean, m is the conditional me. The only thing is, i give the relationship a lot of
structure by saying, hey, my model is linear, Actually, i'm making my life super
easy. By doing that. I said, okay, you know what? Let's say assume you know,
because life is easy with linearity because anyone else, right?

[Speaker 2]
All right.

[Speaker 1]
This is a Non parametric. Conditional mean model. I don't teach that in this
course. I don't teach it at all air but you know i can't teach it if you want later
on.

[Speaker 2]
All right. Have

[Speaker 1]
You ever heard about the non-parametric? Model. And if you heard about it, no. Now,
before i get into the assumptions, Non parametric model is like, suppose like
there's a sliding door on that window. All right, if you open that sliding door,
completely you let all the data in Like here, you'll add all the data in and then
you'll fit along. So, you take the y and x and you average it you'll find the line,
right? But what if you do Open the window not completely but slightly so meaning
that you have the data points like this guy. This is x and y, all the data points
like i have here. Okay, so i i opened the window. Such that um, just this much All
right, and i go evaluate the observations only. Here's an calculate the average
here, right? Then i move the window slightly like this, like this. So like, every
time i move the window, i i was able to calculate that. So i fit a line like this.
Right, so that's what the number parametric function does. All right, so i i
basically let the data speak in that case and i don't estimate those parameters at
least. Well, let's do squares, but i i choose a bandwidth, this is called bandwidth
h. I choose a bandwidth And that bandwid basically based on that, memory sumuded, i
assume that i i fit it off tomorrow. Right. So um, that's if you really are
suspicious of non-linearities in your model, that's basically a one way you can
deal with it.

[Speaker 3]
It's fancy. It looks nice. Uh

[Speaker 1]
And all that but now we're not going to deal with it in this course yet. Maybe
we'll do a little bit more, you know, professor cameos assume this expect a
conditional mean is of again. Not linear nonlinear but not non-parametricate with
with parameters. So it could be like a function like an exponential function here,
but you need an estimate those problems. So later on, for example, later on, we
will learn models where we have, why equals e to the power x. I beta plus UI and
you can estimate data, right? Have you ever heard nonlinearly squares? How many of
you heard long on your list of course, before?

[Speaker 2]
Newer. No,

[Speaker 1]
Yes it took my class before.

[Speaker 2]
Kind of remembered. Okay,

[Speaker 1]
Remember the iteration and all that you give initial values you remember? Anyways,
you did that not for exponential function but for something else. Yeah.

[Speaker 2]
I

[Speaker 1]
Mean so that's known this question, iterative algorithms and all that, right?

[Speaker 2]
So

[Speaker 1]
The thing is, the conditional me could be this, in this case, that's okay. Now,
what i'm trying to say is like, metrics looks like heart, but it's not hard. It's,
it's the conditional me. Whatever you assign to the conditioning if you assign a
linear model. Let's okay. If it's a non-linear model, not that a big deal because
you know, you have state that you have emus, you have matlab, you are you have a
lot of software, right? You go to the close software you say that, you know what, i
have this model can. Yes wait for it for you. Okay

[Speaker 2]
You

[Speaker 1]
Just takes maybe like a couple hours for you to figure it out but you figure that
and go from there right?

[Speaker 2]
That's

[Speaker 1]
The only thing but in this course we will do more than that in this course we will
learn theoretically how we cannot like estimate these models and all okay, now
today it's chapter. So we need that. I'm gonna go through the assumptions. So, our
first assumption is the linearity. You see linear model our first. Assumption is
someone is a linearity. Assumption one. Linearity. Linear idea of the model. So,
We're looking at derivative of YI. With respect. X j. I Um, So, let's say, Our
model y-i equals e to the power x. I 1 beta 1 plus xi 2 beta 2. Um, Plus. That x i
k. Bet i k. This is an exponential model okay? Not a linear model. And then UI. And
if you take the delivery off, This YII with respect to x i1. Let's take it
derivative together. What would be the remove the revenue of this with respect x? I
want?

[Speaker 2]
With respect to exile one. They just beta one. Hmm,

[Speaker 1]
They got one times something.

[Speaker 2]
E

[Speaker 1]
To the power. You write it in south, right? Excited, one beta one, plus x. I 2 beta
2, dot, dot x, i k. This is what the day. What it was that? So this is not a cool
debate, i want. Right. This is not equal to beta one.

[Speaker 2]
So why

[Speaker 1]
This is so the thing is, in that particular case, When i take you, there will when
it said linear model. The data the derivative. Excuse you a constant number beta.
One beta k. Beta 2. Beta 3. So, um, With the linear model. The. There is. Comes out
to be.

[Speaker 2]
Constant.

[Speaker 1]
Numbers. And hence, Very, And attractive. Interpretation.

[Speaker 2]
All right, so

[Speaker 1]
Suppose like this is wage. This is education that says experience, and then let's
say the last one is black. All right, and then you found this to be negative,
meaning that if you are black, your wage is affected negative. You know, the
effect, right? If this is a long way and if there's a number is negative, you know,
if you are black and not like, you know, the person is difference between their
hourly wage rates. Whereas, if your model isn't non-linear model like that, you can
still interpret of course, but it's not that straightforward. So life is very easy
when you have a linear model, that's the entire thing. Now, when you think about
that, if the true model in the population, Is non-linear. Okay, if the true model
in the population is normally, but the US swim linearity and you've everything is
wrong, okay? So that don't get too excited. When you write a paper because you
don't know the real model, the real model, maybe anything. So, um, we're just
trying to approximate Of the reality. So could be enough. So we're going to start a
little bit off. Matrix algebra vector version of the model and all that we have any
questions you can ask me anything. This is a graduate class, we want to learn here.
I don't want to go fast so stop and ask me. Yes,

[Speaker 2]
Question probably.

[Speaker 1]
You all have problem sets. That some of them will be challenging examples but
you're not going to be writing a paper in this class because the core of this class
is The core of the cloud is to, you know, build up some information and then
fundamentals on it. When i teach the second class, which is economic advanced
methods. I don't teach it. Doctor becuhani, teaches. Now, when i teach other class,
i used to give Like, assign you that paper and assign another person, a different
paper and you were supposed to replicate it. Which was like a replication. So when
you replicate it, you actually learn to the entire thing, of course. It's after
like i teach panel data a little bit of time series and all that and then choose a
paper that i think you can replicate and give you the data set and then you're
blink, it, which is like, very useful over the years. I found it.

[Speaker 2]
It's a

[Speaker 1]
Time you.

[Speaker 2]
I remember you saying last night time series a little bit like, yes.

[Speaker 1]
For the last three, four weeks, we built Again, but there. That's going to be good.
So a good material, a lot of story. I'll try to assign you a lot of questions, some
problem sets, and all that, we'll see. If you want to work on a project, i have so
many projects in my mind, i just, i can't keep your super busy, you know, it's just
not part of class, but No. I i literally have like a pink vert file. In one of my
research ideas folder and i i sometimes i go into journals and look at. Okay, oh,
this is what they did. Oh, this could be extent, i just write up and because they
don't i can't forget about it. I just write up there. I like okay, guy, i have
time. I'll look into this. I'll look into that. Require a student. Like i can work
with. I can just assign this. So you know, if you really want to work, you're gonna
always reach out. And

[Speaker 2]
Then we will talk to you. And last question, do we get into causal entrance at all
like, Yeah, like any

[Speaker 1]
Causeway, inference methods, of course we do. Yeah, we do. So this, i will let go
very closely to green because green is like the book that we teach. And then you
know, times of time we can't get into the cause of impress buttons as well. But
what a particular method you have in mind in terms of the methods,

[Speaker 2]
Um, I like, Potential outcomes. And, The instrumental variables even though like
detrimental variables. It's hard because right? It's hard to think of one right?

[Speaker 1]
Well,

[Speaker 2]
Yeah, but it's fun when you do get actual good one, you know, writing of action. I
went to that's, that's fun. But yeah. Yeah, we

[Speaker 1]
Will, we will tear technically look at it and then we'll all do some examples in
class, uh, with the iv and all that. Uh, but we want to who a lot of like, you
know, a project or anything

[Speaker 2]
Like

[Speaker 1]
That but you know, you just we'll touch, try to touch everything. Um, because it's

[Speaker 5]
Just to give you like a flavor of what is going on here in that course. So

[Speaker 1]
Now next So, here we go. We say vector version of the model.

[Speaker 2]
YI. Because, All right.

[Speaker 1]
So, this is like, These two are the same things but there's just give you more
explanation. So this is like one by one. This is like one observation. And that's
like another observation. That's again, one by one. All right, so this is how many
rows. One, two, three, four kilos. So this will be k by one. In terms of the vector
and then this will be one, two, three, four, k columns. So if we one by k. Okay. So
we won by k. That's how you can multiply one by k with k. By one, when you multiply
by k, with k by one. We one by one. One by one and everything is one by one. So
this is like a vector version of it. Right? So, you multiplying vector, so you
multiplying this with that, right? So like this, Hey, i'm multiply like that. Okay.
Now, what about the matrix version? In metrics version. We'll slightly different
because now you have n observations, right? So in the metric version, you would
have something like this. Matrix.

[Speaker 2]
Portion, you're

[Speaker 1]
Right y1, y2, y3 data y, n. Almost don't worry. And we have Um, x1. Next. X3.

[Speaker 2]
X. And Beta.

[Speaker 1]
U1 youtube. Military. And by one, And by one easy ones and by one and by one Beta
is k by 1. So it must be something by k. Because you have to multiply them and then
the outcome needs to be and by one because and by one equals n by 1, plus m by one.
Right? So it must be and by k,

[Speaker 2]
They

[Speaker 6]
Bring technology to the classrooms at Howard. So, almost all the classrooms now

[Speaker 1]
Have no whiteboard or they have a very small whiteboard but they have like a large
screen till television and a small screen television next to it. So i can't write
anything. I just show my powerpoints, i need to a small television, i write with my
finger a little thanks. So, when you teach metrics and then stats, Like, Now, i'm
like swimming in a big sea right now. It's just so so much. Like, look, i finished
two boards and then erased, another one i'm gonna write again. So this is something
i really miss. Even when i teach the EA Summer Program, they put us in this room
where we have like a large TV and i have to write with my drawing table. I'm
struggling to write everything. So this is a great opportunity for me to teach
this. Um and again some we don't have so many students for like time they record it
was online and we have a great small number of students last year. This time i had
like a good crowd so we can do a lot this semester. And it again, i'm just, i'm
just building up on that. I'm writing the same thing basically. Um, made up plus
you. But this is What it will look like. So this is x1 one x.

[Speaker 2]
Um, two one. X and 1. So

[Speaker 1]
This is the anth observation. And this is x1k that that this is x and k.

[Speaker 2]
And then

[Speaker 1]
So you can write the metrics form and x beta plus you. So in this course, when we
are using the matrix out your bra, this is what we will write why equals xp data
plus 2. Now. So, as suction one was the narrative model assumption 2. Assumption
too. Um, Expectation of UI given x. Is zero. Do you know the meaning of it?
Assumption of strict exaggerating. Exception of singing the journey. Now how do we
interpret this like what is the meaning of it?

[Speaker 2]
That no other x term is correlated or related to, it's sorry. Every x term in
orthogonal to every other x term. Okay.

[Speaker 1]
Okay. So can you do can you give a little bit more intuitive? The orthogonality was
nice. But that's more like statistical. Yeah, other

[Speaker 2]
X term is related to

[Speaker 1]
Any other x term, so

[Speaker 2]
Uh, i don't know. Say, for example, if you have a extern that Has a variable for
women, right? You don't also have x term that has a variable for men, right?
Because

[Speaker 1]
That's you
[Speaker 2]
Know, That's i

[Speaker 1]
Understand. I understand what you try. Yeah. That that's perfect. That's good. But
here, so how i would do it is this This is my access. This is my you, right? So, i
think, like, this wage is dependent variable. I have used, let's say, let's make it
really easy wage. Equals beta zero plus beta, 1 education are beta to experience
and beta 3, Black. And then you. All right, let's say this is our model expectation
of you given x. These are my x's. Okay. So these are my access equals zero means i
did such a great job, saw that whatever left in years. All right, whatever left in
you is so tiny. So little there's no meaning When you look at the expectation of
you give an x because you explain the ways with these variables. So well whatever
left over is really nothing so it's clean. Expectation of you do on access zero,
All right, that's how you would intuit, will do it. But when you think about it,
like how in real world, you do such a great job, but all the variables that exist
to to the relationship. So that whatever left on you is clean. So how can this be
true? Right. Right. Because you can't you can't you like how would you know? Or
like there is always uh going to be a very well that you forget or you don't have
data and then you can actually so you give an x is going to be Almost never zero,
right? You can show this and that but no, like, right. So now what happens, okay,
we'll talk about the assumption on all that but what happens if expectational view
you have an x is not zero. Now one would happen like one, one constant case of it
as well.

[Speaker 2]
That mean that the x terms correlate with the error term,

[Speaker 1]
Right? There's something in the you that you forget is up there, right?

[Speaker 2]
We

[Speaker 1]
See teleportation. Okay, or what we did variable bikes? Okay, what happens? There's
nobody did variable. Bye one. Apple to this numbers. Suppose i forgot an important
variable. Let's say, i forgot. Bourbon. Or father's education. Or mother's
education or IQ or one of these guys. Okay. What would happen to these
coefficients. Over estimator underestimate, depends on the correlation, depends on
the correlation, right hundred. We don't know the parts on the correlation, right?
Depends on the correlation between the between experience and urban and all that,
right? But that's going to be a bias. We call it a bias.

[Speaker 2]
Okay, now,

[Speaker 1]
If you read any empirical papers, you will see like, sensitivity analysis. This is
probably like the last section on all it, and they do tables tables tables tables
tables, tables tables. Seven, eight tables time. Tables like that. With the purpose
of the size, 30 analysis, was this Now, the paper comes out and say, maybe the beta
one equals when i wanted equals 0.15, this is what they found in the paper, right?
So they tried to convince the referees editor at all the readers that that number
even though they add or subtract variables from the model. Beta one had doesn't
change that much. They do one table and show beta one at equals 0.16, but they do
another table, but i don't want it is equal point 14. They do another one better
one because See, and they argue, you know, what, there might be, this assumption is
violated, but at the end of the day, the number is still like, very close to 15 and
their argument is correct for policy, conclusions and all that right. You will see
all these uh papers talking about sanskrit animals, the whole reason of it is
because of this assumption Expectation of you human axis is not zero. So everything
is messed up in the paper. They try to convince the reader that hey we have done
all these so this this results are robust. Okay,

[Speaker 7]
Makes

[Speaker 2]
Sense.

[Speaker 1]
Yeah, so what they do basically is they add urban They add photos education, they
mother's education iq or they drop black, they block experience, they do all these
different combinations and gummy bear wasn't all that and at the end there is one
variable like a policy variable or education or whatever they are looking at and
their goal is this number doesn't change that much so they can interpret it. The
thing is if that number flips They probably have to do a new paper on it because
that's wrong. Because if that number like changes sign, You know, that's not
something good. There's something going on. They have to take care of it, right? So
i basically if i'm like about the right of paper, the first thing i would do is
like try like five, six, seven eight different independent variable set of groups
and then i will look at the target variable that i want to put in my model that i'm
going to write a story on and if that number is so switching like signs are no i'm
done because i can't really build up on that because i mean i do it more
regressions than i think change slightly. Oh now my numbers will flip. So i can't
really write on that so that's important. So, that is Again you see how strong is
that assumption? This is a really strong assumption. And now later on, we're gonna
while I like this, the entire course is like this. We have the assumptions and
another chapter with wild like the assumption. Okay. Now i'm going to show you
another assumption and another chapter will while at that assumption. Oh, those So,
assumption to is that, and then, So, if you want to write this, You can write it
as. Expectation of straight over here so i can write this also safety, same thing,
i can write it as x. I One comma x. I 2 dot dot. X, i k. Equals zero. For all eyes.
I can also write expectation of UI conditional xj. Equals zero for all. I that's
the same thing and Yes, that's it.

[Speaker 2]
All right, so yes, go there now

[Speaker 1]
Assumption Two. This was an assumption to a Now, i will have assumption 2B.
Expectation of UI square. Conditional on xj. Equals. Sigma square. Or this is the
same thing. Yes, of UI condition on. Xj. For all jet. All right. Or this is the
same thing to say. Expectation of UI square conditional x equals sigma square. Now,
What is this? One is this assumption? Do you know the name of this assumption?

[Speaker 2]
Experience, huh?

[Speaker 1]
Various do what various is constant? So, what what is the? We have a verb. We have
a term for. Do you remember that word? Oh, This up his home. Homo.

[Speaker 2]
Scarasticity.
[Speaker 1]
Yeah, you remember now very good homos. Querastic. Almost got assist. Now, how am i
going to explain once again that's this day because homosexy Means this. Now, So,
let's say, We have two people. Person number one. And person. Number two. Person
number one. Makes two thousand dollar. Per month. Monthly income. Net income. Okay.
After texas. This guy makes 35 thousand dollar a month. I know it's a lot of money,
you know, everyone wants to make 35 thousand. Right. This is income. Income. All
right, this is income. So, what i'm going to look is the rent. How much rent? That
could possibly pay.

[Speaker 2]
Right?

[Speaker 1]
So if imagine yourself your number one, You're making two thousand dollar a month.
Can you tell me the ranch? So what does the lowest and mac highest Grant, you
campaign. You're making two thousand dollar a month. How much is the lowest you go
for a room? How much is the lowest you campaign? I mean, i'm not saying oh, zero is
a possible ability. You can crash to someone's room but not like that because you
have to pay. So how much is the lowest you can find in these? See

[Speaker 2]
Huh.

[Speaker 1]
500 can you find some something for 500?

[Speaker 2]
A nice cardboard box made. Yeah.

[Speaker 1]
So like, let's say 800, And how much is the highest you can go? Because you're only
making, you're only making 2000. Okay. So the ranch is 400,

[Speaker 2]
Okay? Okay,

[Speaker 1]
Now we can, we can, we can dream a lot now. If you are making 35 thousand dollar a
month, what is the lowest you would go for?

[Speaker 2]
Don't

[Speaker 1]
Say 500 4000. 4000. Okay, that makes sense because you don't want to go or
something like really cheap because you're making all this money and how much
maximum

[Speaker 2]
You will pay for rent. Probably

[Speaker 1]
Yeah, you can do more, right because i don't know, i think 15 minutes.

[Speaker 2]
So

[Speaker 1]
Let's say 12 thousand dollars max you can make sense, right? Because after 12 years
i mean you probably can't find any out any house for Um, you can, of course But you
will be out of option soon. Because it makes so much money. Now see the thing is
okay, if you look at here, I hope everyone here makes 35 thousand one day. Um, flat
education. Yeah. What? Well, even with a phd start but this, yeah. So, what looks
like this so you have Their income is two thousand dollars here. And then you have
35 thousand dollars here. Let's say,

[Speaker 2]
All right,

[Speaker 1]
And then they're ranging the range. You you deal with is just Is this 800 to 1?
10200 and then the range you deal with within four thousand is like a huge like
this. Right. For that one. This is what it's got.

[Speaker 2]
Right. What

[Speaker 1]
Does the homosexual? Assistant tell you homos? Que elasticity says, this variation
is constant.

[Speaker 8]
When you increase the income,

[Speaker 2]
All right, does

[Speaker 1]
It make sense? You're someone making 50 thousand and your rent is going to be
always between 800 and 1,200 or 400, basically always a 400. So the thing is it
could be more later but the ranches stays the same. The thing is, when you make
more money, your options are a lot. So so homos can assist in this case is
violated, right? So what does this, what does this rule or what does it assumption
say? It says it has to be constant. When you run regressions. How would this be
constant? Like, if you have rent, you're trying to model the rent with income that.
How would you do that? It can't be constant. So what would you do? If it is the
case? If it is the case that you have a homoscada system problem hetersistency.
Now, what would you

[Speaker 2]
Robust.

[Speaker 1]
Robust. What does it mean, robust? Robust is something that you have to do, but
what is robust? This is the command in the statea.

[Speaker 2]
Yeah. Okay.

[Speaker 1]
Very good. So

[Speaker 2]
Finish

[Speaker 1]
Up writing erase this part. If you have a, if you have other cigarette, assisted
problem, of course, One thing you could do is instead of running the asymptotic
standard errors and you're going to be running. Robot

[Speaker 2]
Standards,

[Speaker 1]
Right? But then, what does how does the robot standard errors or calculated?

[Speaker 2]
That's it increase. Oh, i don't know. Visit just increase the variance. Or the the

[Speaker 1]
The it takes into account the possible characteristics in the error terms, and
corrects, The variance it may increase or make may decrease it depending on the
form of letters characteristicity. Consistent standards errors are called robust
editors and then they're usually calculated using the white correction, you know,
the white correction? Yeah.

[Speaker 2]
Yeah.

[Speaker 1]
The white white test so white test has like linear term, quadratic term, and then
interaction term. So using that a corrected, right? There's an alternative way to
deal with later. It's gonna have to stay problem. That is called boots trap, right?
Have you ever heard bootstrap? Yeah. What is bootstrap?

[Speaker 2]
Can you read

[Speaker 7]
Increasing the number of respondents just increasing the number of samples? Okay.

[Speaker 1]
So suppose you have a sample size n. And you're getting sub samples. From him from
this end size and one and two and three smaller than, and then using these like
doing this, Let's say 999 times. Yeah, i did 99 times. And then you calculate the
coefficients every time Right? So you calculate debate on one hand here, you
calculate the beta one hat here, calculate the beta one hat here. Because later one
had here completely video one here and then you have like, 999 beta, one hats. Now,
you can look at the distribution, you can calculate the standard error of it, and
that's going to be your It's down here. Bootstrap center permanent issue. Is this
when you take a sub sample, from the end, how would you sample it?

[Speaker 2]
Friend. Yes,

[Speaker 1]
Random. But if the data hat is time series, There is some sort of a dependent
structure in it, right? Right.

[Speaker 2]
So,

[Speaker 1]
How would you random the take the data and IT to dependent structure on it? Or if
there is a time series dimension and there's also a panel dimension on it. And you
have to do it in a way that, all right, that is quite. So when you go to state up
and then put a comma boot, State that doesn't random bootstrap, iid bootstrap,
right? So i8 bootstrap may may not work for you. So when you're doing the
bootstrap, you have to be careful with the type of data you have, right? If it is
cross sectional data, like we do in this course, in the beginning of this course it
works.

[Speaker 2]
Right, but

[Speaker 1]
If the data is time series, Wild bootstrap jack knife. So many of them, they have
to find which one is the best and then go for it. Most of the packages in our in
statea would have that specification you would have to go and specify yourself and
do it, right? I'd have to know what's your name. All right. So why, why did we
start works? Because You don't know that you're scholastic. So the thing is, this
the story is variance of you. Human eggs, equals sigma squared, times of age of x.
And has this discern. All right? So the thing is, i don't know what the hell this
guy looks like. I don't know what this looks like. What am i going to do? Either
use white standard errors or white correction. Which is again an approximation. We
don't know what it is, or take sample, sub samples, from my sample. So treat my
sample as a population and get samples, and then look at the distribution of it,
right? So, The boost trap, makes more sense, right? In that case because you're
you're actually treating your sample as your population and then whatever your
samples gives you, it works up, right? So we will, we will work on that later on.
On. So this is like a chapter. We'll be working later on, like headers against this
chapter. See, different models. Um, and all that. Okay. Does this make sense? Yes,
yes.

[Speaker 2]
So

[Speaker 1]
Variance of you given x. Um, Would be like this. In the homeostasis decays, when
the life is beautiful variance of you, one given x. Various of youtube given eggs.
Variance of you and give x. And i have, Covarians you want comma youtube given x
dot ovarians of. New one. Comma you and your ex And then, Covarians of UN command
you one given x?

[Speaker 2]
No.

[Speaker 1]
Now, when you look at this, i'll explain it. The various of you one. Give an x bike
has suctions is is a constant number. So various of you given x. Would be equal to.
Sigma square sigma squared. Sigma square. All the diagonal elements are going to be
sigma square. Why? Because by assumption? Remember, variance of you, i give an x is
constant sigma square, right? Now, what about these other guys? What about these
other guys?

[Speaker 2]
To the evil. One no

[Speaker 1]
One or zero. So this is like error term from the first observation and error from
the second observation. So you're one observation, i'm gonna draw observation, they
assumption is IID. Okay, you and i are independent from each other, whatever
happens in your error term and whatever happens in my entire term shouldn't have
anything in common. So this would be zero. This will be zero. This will be here
that all these numbers are going to use you. So then at the end you will have
something like this sigma square times. The Like one one, one. Zero

[Speaker 2]
Zero. Zero zero zero zero.

[Speaker 1]
Okay. So do you know what? We call this metrics? There's a name for this message.
So, i don't think so. This is And identity metrics. Okay, eresis.

[Speaker 2]
So

[Speaker 1]
Various of yugio and eggs. Um would be equal to sigma square times, the identity
matrix with n dimension. So i have i n This is. Um, this is n by n. Okay. And by n,

[Speaker 2]
And by hand, Assumption 3. Rank

[Speaker 1]
Of x. Equals k and that's is less than equal to n.

[Speaker 2]
All right. Now, have you ever heard the word prank?

[Speaker 1]
Rank of x, equals k vested equal to n. What is the meaning of rank?

[Speaker 2]
New

[Speaker 1]
Have you heard rank before i

[Speaker 2]
Have, i'm trying to remember because it's later, algebra

[Speaker 1]
Range rank of metrics. Number of independent.

[Speaker 2]
Columns are all us, right?

[Speaker 1]
So, I have a matrix like this. But this is x, okay? This is my my ex and
econometrics is like this as an education. This is experience, this is black, and
this is whatever. So you have all these, all these clouds. Okay. All this columns,
so rank of x. So this is m by k everyone. Okay with that right?

[Speaker 2]
Right.

[Speaker 1]
That so k is the number of columns. So one, two, three. K comes okay, k column,
okay. Comes. So if the rank of cake, the rank of x equals k, meaning that these
Eyes are independent. What does it mean? Independent, i cannot add experience on
black or i cannot linearly combine experience and black and obtain education. So i
cannot look like this education equals two times, the experience plus blank. I
cannot do that. Okay. This is not call or i cannot do like education equals five
times black. Uh minus two urban let's suppose an i can't do any linear combin. Of
it. So they are independent from each other. Why is this important? Because the
variables, you have the independent variables, they have nothing in common, they're
independent from each other. So they are explaining in the public if they are
dependent. So if if

[Speaker 8]
Education equals 2 times experience, what is that problem? You

[Speaker 1]
Know, the meaning of the problem

[Speaker 2]
Here.

[Speaker 1]
Okay, so they are perfectly culinary collinear. What do we call this problem? If,
if they are not If they are not like perfectly correlated but suppose there's a
correlation. But this point a point nine, we still have a collinearity problem.
Now, what do we do in that case,

[Speaker 4]
Take one out,

[Speaker 1]
Take one out, you can't take one out

[Speaker 2]
Or do

[Speaker 9]
You know, do you remember how to figure that out? Which variable is the problem?
Which ones are the highly correlated ones, right? So we'll get into those. All
right, we'll figure out those in diagonists later on,

[Speaker 2]
You

[Speaker 1]
Need to look at r square, but you have to run the regression of education on the
other videos. Not the regular regression

[Speaker 2]
Elsewhere,

[Speaker 1]
Right? So like if you're under aggression of education on the other variables and
look at the r square, you can run the exper. On the other variables and look at the
r square and can run the black and run the other way and look at the r square. The
r square with the highest 99. That means there's a variable that makes it perfect
correlation with that, right? So that is the problem. Okay. Yes,

[Speaker 2]
Could you walk the data to log the variable? That's given information, right?

[Speaker 1]
Not in this case. So idea, you can't get rid of that problem by logging

[Speaker 2]
In

[Speaker 1]
Yeah, you can't just oh, if education and experience has like a multicolonia, the
problem, or they're like a multiple of each other. You can't just log experience
and move forward. Now,

[Speaker 2]
You

[Speaker 1]
Can't do that because basically this information and that information, identical,
you don't want to put the twice the same, right? What happens in a computer? Like
if you go to you use or statea like state, i will automatically drop it for you. So
you go to statea, right? And then your side run the regression and you put a
variable like education in your so regress. Education. And then the next variable,
let's say five times education and then let's say a black and all that when you run
the regression stay that will automatically drop this for for you or Us will not
run it. It useful say there's a problem, we couldn't take the inverse or something,
so you would have to do something else for it, right?

So these are, that is what the rank x equals, okay? Which is less than equal to n,
right? So, i'm going to erase this, but you can write it on your own words. What
that, that means,

What that means.

So, Let's say for example, let's do an example.

Why i equals? X, i 1 beta 1. X i2 beta 2. Plus you are. And let's say x i 1 equals
Two, xi 2. All right, and now from here, That what would happen? Oh, X i1, because
2xi 2. What am i going to do now?

Because you can write it, you can rewrite it. So you say, 2x2 Beta 1. Um, plus Xo2.
Xi2, beta 2. Plus ui. Okay, and if you look at it, That it will be like this, why i
e equals? In. Xi2 bracket, it will be two beta 1. Plus beta 2.

Plus, you are see.

So xi2 is enough to run this model, so that But you know what, i have made, i want
to beta two. So what i would do is i will say why i equals x i 2. And then instead
of beta one beta 2.