Lecture 2:

Distributions

Slides by Dr Anthony Birchwood

Revised by Soleil Frederick
 Learning Outcomes
• Discuss the Normal Distribution
• Discuss the Chi Square Distribution
• Discuss the T-Distribution
• Discuss the F-Distribution
• Discuss the Regression Model
• Discuss the types of Data

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 Distributions
• Normal Distribution
• Chi-square
• T distribution
• F distribution

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 Normal Distribution
• For any population distribution, once the
number of samples drawn on a population are
sufficiently large, then
– the mean and variance of the sample would be
equal to that of the population regardless of the
distribution.

• This is known as the Central Limit Theorem.

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Normal Distribution

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 Definition of Normal Distribution
• Normal distribution density function is
defined as

• Standard Normal is one that has a mean of

zero and a variance of one. That is

• For Standard Normal: Mean=Median=Mode.

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 Non Standard Normal
• Negatively Skewed

• Mean < Median < Mode.

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 Non Standard Normal
• Positively Skewed  
 
 

Mean > Median > Mode

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Attributes of a normal distribution
• Centre and dispersion is given by

• Standard normal is symmetric around the mean.

– Where is the standardized normal random variable is

one that has a probability density function (cdf).
– Random is synonyms with chance or stochastic
probability.

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 Chi-square
• Chi square is a non-parametric statistical
technique to investigate whether the
distribution of categorical variables differ.

• Can be used to test the hypothesis whether

the mean between 2 groups or populations
differ.

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 Estimating Chi-square
• Chi-square random variables are obtained
when standard normal random variables are
squared.
• If , denote random variables, then
• This means that the random variables has a
chi-square distribution with degrees of
freedom.

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 Shape of the Chi square curve
• The degrees of freedom parameter indicates
the number of independent random variables
that are squared and summed to form
• The value of determines the entire shape of
the chi-square distribution and its mean and
variance.

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 Tail of Chi-square curve
• As becomes larger, the distribution has a long
tail and is skewed to the right .

• When it is sufficiently large, the distribution

converges to a normal distribution.

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Chi Square

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 T-test
• The t-test is used to compare the means of
two groups to test the null hypothesis: that is
whether the means are equal between
groups.
• If z and V and and are independent, then .
– where is the sample standard deviation.
– is the sample size.

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 F-Distribution
• F distribution is formed by the ratio of two
independent chi-square random variables,
divided by their degrees of freedom.
• .
• F test:

–, 0

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 What is a Regression Model
• In very general terms, regression is concerned
with describing and evaluating the
relationship between a given variable and one
or more other variables.

• More specifically, regression is an attempt to

explain movements in a variable by reference
to movements in one or more other variables.

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 Regression Model
• Regression analysis is used to:
– Predict the value of a dependent variable based on
the value of at least one independent variable
– Explain the impact of changes in an independent
variable on the dependent variable
Dependent variable: the variable we wish to
explain
Independent variable: the variable used to explain
the dependent variable
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 Simple Linear Regression

Population Slope Independent Random Error term,

Population
y intercept Coefficient Variable or residual

Dependent Variable

Linear component Random Error

component

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 Types of Data
• Time Series Data
– Quantitative data
– Qualitative Data
• Cross Sectional Data
• Panel Data

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 Continuous and Discrete Data
• Continuous Data – can take on any value
• Discrete Data –are often defined to be count
numbers.

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Steps involved in Forming An Econometric
Model

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 What About Steps 4, 5 and 6?
• To be continued…

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