Scribd
Upload
190 views

Ols Proof

The document describes the derivation of ordinary least squares (OLS) estimators. It shows that the OLS procedure minimizes the error sum of squares (SSE). It then derives the OLS estimates of the coefficients (β0 and β1) by taking the partial derivatives of the SSE with respect to each coefficient and setting them equal to zero. This results in equations that can be solved for the OLS estimates of β0 and β1. It further rewrites these estimates in terms of the sample means, variances, and covariances of the independent and dependent variables.

Uploaded by

Nopri Keliat
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
190 views

Ols Proof

The document describes the derivation of ordinary least squares (OLS) estimators. It shows that the OLS procedure minimizes the error sum of squares (SSE). It then derives the OLS estimates of the coefficients (β0 and β1) by taking the partial derivatives of the SSE with respect to each coefficient and setting them equal to zero. This results in equations that can be solved for the OLS estimates of β0 and β1. It further rewrites these estimates in terms of the sample means, variances, and covariances of the independent and dependent variables.

Uploaded by

Nopri Keliat
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
You are on page 1/ 2

AGEC 317 Dr.

Capps
Fall 2008
Derivation of Ordinary Least Squares Estimators
u x
y
i i
i
+ +
1 0
where
y
i
is a dependent variable, xi is an independent right-hand side
(RHS) variable,
i
u
is the error term (unobservable),

1 0
and
are coefficients. The
ordinary least squares procedure minimizes the error sum of squares (SSE). The
minimization problem is given as follows:
b) - (1 0 ) ( 2
a) - (1 0 ) 1 ( 2 . . .
) , (
1
^
1
^
0 ^
1
1
^
1
^
0 ^
0
2
1
^
1
^
0
1
2
^
1
^
0

,
_

,
_

,
_


i
n
i
i i
n
i
i i
n
i
i i
n
i
i
x x y
SSE
x y
SSE
C O F
x y u SSE Minimize



Step 1: Derive the OLS estimate of )

(
0 0


0
1
^
1
^
0

,
_

n
i
i i
x y
divide equation (1-a) by -2

0
1 1
^
1
1
^
0



n
i
i
n
i
n
i
i
x y
re-arrange



n
i
i
n
i
i
x n y
1 1
^
1
^
0
0
divide both sides by n.

0
_ ^
1
^
0
_
x y
re-arrange

_ ^
1
_ ^
0
x y
solve the OLS estimate
^
0

Step 2: Derive the OLS estimate of )

( ,
1 1



+
n
i
n
i
i i
x n y
1 1
^
1
^
0

re-arrange equation (1-a) (2)


+
n
i
n
i
i
n
i
i i i
x x y x
1 1
2
^
1
1
^
0

re-arrange equation (1-b) (3)
Now multiply equation (2) by the sum of
i
x
and equation (3) by n. Subsequently,



1
]
1

+
n
i
n
i
i
n
i
i i
n
i
i
x x n y x
1
2
1
^
1
1
^
0
1
(4)



+
n
i
i
n
i
i i
n
i
i
x n x n y x n
1
2
^
1
1
^
0
1
(5)
Subtract equation (4) from equation (5).
2
1
^
1
1 1
2
^
1
1 1
1
]
1




n
i
i
n
i
n
i
i i
n
i
i i
n
i
i
x x n y x y x n (6)
1
AGEC 317 Dr. Capps
Fall 2008
Solving equation (6) yields the OLS estimate of : )

(
1 1

2
1 1
2
1 1 1
^
1
1
]
1





n
i
i
n
i
i
n
i
i
n
i
i i
n
i
i
x x n
y x y x n

(7)
Step 3:
) (
) , (
) (
) )( (
1
2
_
1
_ _
2
1 1
2
1 1 1
^
1
x Var
y x Cov
x x n
y y x x n
x x n
y x y x n
n
i
i
n
i
i i
n
i
i
n
i
i
n
i
i
n
i
i i
n
i
i

1
]
1

The numerator of equation (7) can be re-written as follows:


_ _
2
1
_
1
_
1 1
_ _
) ( ) ( ) ( ) )( ( y x n x y n y x n y x n y y x x n
n
i
i
n
i
i i
n
i
i
n
i
i i





+
n
i
i
n
i
i
n
i
i
n
i
i
n
i
i
n
i
i i
n
i
i
x y x y x y y x n
1 1 1 1 1 1 1
) (



n
i
i
n
i
i i
n
i
i
x y y x n
1 1 1
) (
(8)
The denominator of equation (7) can be re-written as follows:
(9)
2
) ( 2 ) (
2
1 1
2
2
1
2
1 1
2
1
2
_
2
_
1
2
1
2
_

,
_

,
_

+
,
_


+






n
i
i
n
i
i
n
i
i
n
i
i
n
i
i
n
i
i
n
i
i
n
i
i
x x n
x x x n
x n x x n x n x x n
2

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy