Capital asset pricing model, 165-166, 550-551 as recursive system, 781-782 stages of analysis, 291-292 Capital market line, 135-136, 407 Categorical variables, 297 Cauchy-Schwarz inequality, 94 Causality bilateral, 697 examples, 699-700 and exogeneity, 701-702 Granger test, 696-702 predictive, 696

Sims test, 696n, 712-713 unidirectional, 696 and vector autoregression, 852 Causal models, 764 CDF; see Cumulative distribution function Censored sample, 616 Central limit theorem, 109, 890 Change, 176n

Characteristic line, 166, 781

example, 168-169 Child mortality, 213-215, 249-250 Chi-square distribution, 112, 159-163, 890-891 reproductive property, 160 Chi-square goodness of fit, 336, 339

Chi-square test, 133 Chow's prediction failure test, 542 Chow test, 275-279, 321n, 542 dummy variable alternative to, 306-310 Classical econometric methodology, 3-12 Classical linear regression model, 15 assumptions, 66-76, 928-931 data assumptions, 441-442 Gauss-Markov theorem, 79-81 goodness of fit, 81-87 homoscedasticity assumption,

387-388 least-squares estimators, 100-106 matrix approach, 926-958 and Monte Carlo experiments, 91-92

no-multicollinearity assumption, 341

numerical example, 87-91 OLS estimators, 931-936 precision or standard errors, 76-79

problems in applying, 336 simplifying assumptions, 335 validity of assumptions, 75-76 violating assumptions, 336-339 Classical normal linear regression model, 15, 107-118 normality assumption, 108-112 simplifying assumptions, 335 violating assumptions, 336-339 Classical theory of statistical inference, 107 Classical tradition, 12 CLRM; see Classical linear regression model

CNLRM; see Classical normal linear regression model Cobb-Douglas production function, 11, 223-226, 247 formulas, 564-565 for Mexican economy, 269-270 properties of, 224 Cobweb phenomenon, 446-447 Cochrane-Orcutt iterative procedure, 482, 492-493 Cochrane-Orcutt two-step procedure, 482, 493-494 Coefficient constant, 641 differential, 308-309 differential slope, 308-309 intercept, 41 partial regression, 203 of per capita gross national product, 244-245 regression, 41 slope, 41 varying, 644-647 Coefficient of adjustment, 673 Coefficient of autocorrelation at lag 1, 450 Coefficient of autovariance, 450 Coefficient of correlation, 85-86

multiple, 212-213 Coefficient of determination, 81-87, 217-223 critical values, 283-284 definition, 84 F test, 258-259 in matrix notation, 936-937 maximizing, 222-223 in multicollinearity, 354 multiple, 212-213 Coefficient of expectation, 670 Cofactor matrix, 923 Coffee consumption model, 220-221 Cohen-Rea-Lerman study,

590-591 Cohort analysis, 636 Coincident regressions, 306 Cointegrating parameter, 822 Cointegrating regression, 822 Cointegrating regression

Durbin-Watson test, 824 Cointegration for error correction mechanism,

824-826 testing for, 822-824 Collinear, 204 Collinearity perfect, 343

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