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The General Linear Model I

  • Phoebus Dhrymes
Chapter
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Abstract

Econometrics is the study of estimating the parameters of economic models and testing the predictions of theory. In this text, we develop and estimate the general linear regression model and test its forecasting efficiency. In many contexts of empirical research in economics we deal with situations in which one variable, say y, is determined by one or more other variables, say {x i  : i = 1, 2,  … , n}, without the former determining the latter. For example, suppose we are interested in the household demand for food. Typically, we assume that the household’s operations in the market for food are too insignificant to affect the price in the market, so that our view of the household is that of an atomistic competitor. Thus, we take the price of food, as well as the other commodity prices, as given irrespective of the actions of the household. The household’s income is, typically, determined independently of its food consumption activity—even if the household is engaged in agricultural pursuits. Here, then, we have a situation in which a variable of interest viz, the demand for food by a given household, is determined by its income and the prices of food and other commodities, while the latter group of variables is not influenced by the household’s demand for food.

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© Springer International Publishing AG 2017

Authors and Affiliations

  • Phoebus Dhrymes
    • 1
  1. 1.New YorkUSA

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