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Modelo Linear
Modelo de Regresso e Esperana Condicional
Maio/2010
Institute
Conditional Expectation
Our Problem
We have a vector of random variables (Y , X ) that follows a unknown population distribution, F (y , x, ). Statistical Inference: Use our sample (observed values of (Y , X )) to learn about . Econometrics: We are interested in the conditional distribution of a random variables given a set of other random variables. We can write the joint distribution as f (y , x, ) = f ( y j x, 1 ) f (x, 2 )
Institute
Conditional Expectation
Our Problem
In regression, we are interested in 1 . If there is no relationship between 1 and 2 , we can ignore f (x, 2 ). In general, we are not interested in the whole parameter vector 1 , but just in the rst moment and second moment. Regression Analysis: We do inference about E [ Y j X ]
Institute
Conditional Expectation
Conditional Expectation
Goal: Estimate the conditional expectation of Y conditional on X : E [ Y j X ] In general, we are interested in conditional expectations that allow us to infer causality from one explanatory variable (X1 ) to the response variable (Y ) : Structural Conditional Expectation.
Problems: We have observational data. The conditional expectation of interest depends on variables that we cannot observe. Some of the controls, we cannot observe. In addition, we can have measurement error or simultaneity problems. Solution: Under some identification assumptions, we can sometimes recover the structural conditional expectation of interest.
Cristine Campos de Xavier Pinto Modelo Linear Institute
Conditional Expectation
Conditional Expectation
m (Xi ))2
Proof. Exercise
Cristine Campos de Xavier Pinto Modelo Linear Institute
Conditional Expectation
CEF provides a natural summary of the empirical relationship between Y and X . There is a natural link between linear regression and CEF. We will summarize this relationship in 3 theorems.
Institute
Conditional Expectation
Theorem Suppose the CEF is linear. Then the CEF is the population regression function. Proof. Suppose that E [ Yi j Xi ] = Xi , is a vector kx1. By the CEF decomposition property 0 = E [Xi (Yi E [ Yi j Xi ])] = E [Xi (Yi
1
Xi )]
E [Xi Yi ] =
Institute
Conditional Expectation
Classic Situation: (Yi , Xi ) has a multivariate normal distribution. Regression models that are saturated (models that have a separate parameter for every combination of values that the set of regressors can take on) The population regression provide the best linear approximation for the CEF, and the CEF is the best unrestricted predictor of Y given X .
Institute
Conditional Expectation
Theorem The function Xi is the best linear predictor of Y given X , which means that it is the function that minimizes the mean square error. Proof. We need to nd the solution of the following problem i h min E (Yi Xib )2
b
E [Xi (Yi
Xib )] = 0
E [Xi Yi ] =
Institute
Conditional Expectation
Theorem The function Xi provides the minimum mean square error linear approximation to E [ Yi j Xi ], i h = arg min E (E [ Yi j Xi ] Xib )2
b
Institute
Conditional Expectation
Proof: We know that solves the following problem h i min E (Yi Xib )2
b
+2 E [(Yi E [ Yi j Xi ]) (E [ Yi j Xi ] | {z =0 i h +E (E [ Yi j Xi ] Xib )2
Xib )2 i
E [ Yi j Xi ] + E [ Yi j Xi ] i E [ Yi j Xi ])2
Xib )2
Xib )] }
Institute
Conditional Expectation
Summary
CEF is the best unrestricted predictor of Y given X . Regression provides the best linear predictor of Y given X . Regression provides the best linear approximation to CEF. If we are interested in estimating E [ Yi j Xi ], we can use a linear regression to approximate it.
Institute
Conditional Expectation
References
Institute