ECMT1020 Introduction to Econometrics Semester 1, 2023

Formulas for Final Exam

One random variable. Below are the formulas related to mean and variance of a random
variable X.

1. µX := E(X) denotes the mean/expected value/expectation of X.

2 := Var(X) = E[(X − E(X))2 ] = E[(X − µ )2 ] denotes the variance of X.
2. σX X

3. Alternatively, Var(X) = E(X 2 ) − [E(X)]2 = E(X 2 ) − µ2X .

p
4. σX := Var(X) is the standard deviation of X.

Two random variables. Let X and Y be two random variables with expected values µX
2 and σ 2 .
and µY , and variances σX Y

1. Covariance:

σXY := Cov(X, Y ) = E[(X − µX )(Y − µY )] = E(XY ) − E(X)E(Y ).

2. Correlation coefficient:

σXY
ρXY := Corr(X, Y ) = .
σX σY

3. Independence: X and Y are said to be independent if and only if E[f (X)g(Y )] =

E[f (X)]E[g(Y )] for any functions f (X) and g(Y ).

Expected value, variance, covariance rules. In the following, b is any constant,

X, Y, V, W are any random variables.

1. E(X + Y ) = E(X) + E(Y ).

2. E(b) = b.
3. E(bX) = bE(X).
4. Var(X + Y ) = Var(X) + Var(Y ) + 2Cov(X, Y ).
5. Var(b) = 0
6. Var(bX) = b2 Var(X).
7. Cov(X, Y ) = Cov(Y, X).
8. Cov(X, V + W ) = Cov(X, V ) + Cov(X, W ).
9. Cov(X, bY ) = bCov(X, Y ).
10. Cov(X, b) = 0.

Estimators. Let X and Y be two random variables. Let {X1 , . . . , Xn } be a sample of X,

and {Y1 , . . . , Yn } be a sample of Y . Below are the commonly used sample estimators.

1
 1 Pn
1. Sample mean: X = n i=1 Xi .
2 = 1 Pn
2. Sample variance: σ̂X n−1 i=1 (Xi − X)2 .
1 Pn
3. Sample covariance: σ̂XY = n−1 i=1 (Xi − X)(Yi − Y ).
Pn
i=1 (Xi −X)(Yi −Y )
4. Sample correlation: ρ̂XY = √σ̂XY
2 2
= √Pn 2
Pn 2
.
σ̂X σ̂Y i=1 (Xi −X) i=1 (Yi −Y )

Hypothesis tests of a normal sample. Let {X1 , . . . , Xn } be a random sample of X

which follows a normal distribution with mean µ and variance σ 2 . We would like to test
H0 : µ = µ0 for some µ0 . Let α be the significance level of the test.

1. If σ 2 is known, then we consider a z statistic: z = X−µ 0

σX =
X−µ √0
σX / n
which follows the
standard normal distribution, under the null hypothesis.
2. If σ 2 is unknown (which means it need to be estimated), then we consider a t statistic:
t = X−µ X−µ
σ̂X = σ̂X / n which follows t distribution with degrees of freedom n − 1, under
0 √0

the null hypothesis.

Simple regression analysis. Consider a simple regression model Y = β1 + β2 X + u which

satisfies CLRM assumptions. We fit the regression by OLS procedure using a random sample
of (X, Y ) with n observations.

1. OLS estimators:
Pn
i=1 (Xi − X)(Yi − Y)
β̂1 = Y − β̂2 X, β̂2 = Pn 2
.
i=1 (Xi − X)

2. The variances of β̂1 and β̂2 :

2
!
1 X σu2
σβ̂2 = σu2 + Pn 2
, σβ̂2 = Pn 2
.
1 n i=1 (Xi − X)
2
i=1 (Xi − X)

Multiple regression analysis. Consider a multiple regression model with k−1 explanatory
variables

Y = β1 + β2 X2 + · · · + βk Xk + u,

which satisfies CLRM assumptions. Given a sample of n observations, the fitted regression
is Ŷ = β̂1 + β̂2 X2 + · · · β̂k Xk . Note: simple regression is a special case of multiple regression
with k = 2.

1. Sum of squares:
n
X n
X
TSS = (Yi − Y )2 , ESS = (Ŷi − Y )2
i=1 i=1
n
X n
X
RSS = (Yi − Ŷi )2 = û2i , TSS = ESS + RSS.
i=1 i=1

2
 2. Goodness of fit:

ESS
R2 =
TSS
2 RSS/(n − k)
Adjusted R2 : R =1−
TSS/(n − 1)

3. t statistic for testing H0 : βj = βj0 :

β̂j − βj0
t= ∼ tn−k ,
s.e.(β̂j )

for j = 1, 2, . . . , k, where tn−k denotes the t distribution with degrees of freedom n − k.

4. F statistic for testing regression goodness of fit, or, equivalently, for testing H0 : β1 =
β2 = · · · = βk = 0:

ESS/(k − 1) R2 /(k − 1)
F (k − 1, n − k) = = ∼ Fk−1,n−k ,
RSS/(n − k) (1 − R2 )/(n − k)

where Fk−1,n−k denotes the F distribution with degrees of freedom k − 1 and n − k.

5. “Generalized” F statistic for testing general null hypothesis of certain linear restrictions
on the parameters (restricted model against unrestricted model):

improvement in fit/extra DF
F (extra DF, DF remaining) =
RSS remaining/DF remaining

where the first DF in the bracket (and in the numerator) is also called the numerator
DF, and the second DF in the bracket (and in the denominator) is also called the
denominator DF.
6. For a regression model with two explanatory variables: Y = β1 + β2 X2 + β3 X3 + u, the
standard error for OLS estimator β̂2 is
s
σ̂u2 1
s.e.(β̂2 ) = Pn × .
i=1 (Xi − X)
2 1 − ρ̂2X2 ,X3

1 Pn
where σ̂u2 = n−k 2 2
i=1 ûi is the unbiased estimator for σu , and ρ̂X2 ,X3 is the sample
correlation between X2 and X3 .

Logarithmic identities. The natural logarithm is used:

y = log x ⇐⇒ x = ey = exp(y).

3
For any positive numbers x and y, we have

log(xy) = log x + log y

x
log = log x − log y
y
log xp = p log x, p is a real number.

Heteroskedasticity. Consider a linear regression with k parameters and sample size n.

1. Test statistic of Goldfeld-Quandt test:

RSS2
F (n∗ − k, n∗ − k) =
RSS1

where n∗ is the size of the first and the last subsamples, and RSS1 and RSS2 are the
RSS of the subregressions using the first and last subsamples, respectively.
2. White test statistic for heteroskedasticity:

W = nR2 ∼ χ2k−1

where R2 is the R2 from a particular regression.

4
APPENDIX A
Statistical tables

Table A.1 Cumulative standardized normal distribution

A(z) is the integral of the standardized normal distribution from ∞ to z (in other words, the area
under the curve to the left of z). It gives the probability of a normal random variable not being
more than z standard deviations above its mean. Values of z of particular importance:

A(z) z A(z)

1.645 0.9500 Lower limit of right 5% tail

1.960 0.9750 Lower limit of right 2.5% tail
2.326 0.9900 Lower limit of right 1% tail
2.576 0.9950 Lower limit of right 0.5% tail
3.090 0.9990 Lower limit of right 0.1% tail
3.291 0.9995 Lower limit of right 0.05% tail

−4 −3 −2 −1 0 1 z 2 3 4

z 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09

0.0 0.5000 0.5040 0.5080 0.5120 0.5160 0.5199 0.5239 0.5279 0.5319 0.5359
0.1 0.5398 0.5438 0.5478 0.5517 0.5557 0.5596 0.5636 0.5675 0.5714 0.5753
0.2 0.5793 0.5832 0.5871 0.5910 0.5948 0.5987 0.6026 0.6064 0.6103 0.6141
0.3 0.6179 0.6217 0.6255 0.6293 0.6331 0.6368 0.6406 0.6443 0.6480 0.6517
0.4 0.6554 0.6591 0.6628 0.6664 0.6700 0.6736 0.6772 0.6808 0.6844 0.6879
0.5 0.6915 0.6950 0.6985 0.7019 0.7054 0.7088 0.7123 0.7157 0.7190 0.7224
0.6 0.7257 0.7291 0.7324 0.7357 0.7389 0.7422 0.7454 0.7486 0.7517 0.7549
0.7 0.7580 0.7611 0.7642 0.7673 0.7704 0.7734 0.7764 0.7794 0.7823 0.7852
0.8 0.7881 0.7910 0.7939 0.7967 0.7995 0.8023 0.8051 0.8078 0.8106 0.8133
0.9 0.8159 0.8186 0.8212 0.8238 0.8264 0.8289 0.8315 0.8340 0.8365 0.8389
1.0 0.8413 0.8438 0.8461 0.8485 0.8508 0.8531 0.8554 0.8577 0.8599 0.8621
1.1 0.8643 0.8665 0.8686 0.8708 0.8729 0.8749 0.8770 0.8790 0.8810 0.8830
1.2 0.8849 0.8869 0.8888 0.8907 0.8925 0.8944 0.8962 0.8980 0.8997 0.9015
1.3 0.9032 0.9049 0.9066 0.9082 0.9099 0.9115 0.9131 0.9147 0.9162 0.9177
1.4 0.9192 0.9207 0.9222 0.9236 0.9251 0.9265 0.9279 0.9292 0.9306 0.9319
1.5 0.9332 0.9345 0.9357 0.9370 0.9382 0.9394 0.9406 0.9418 0.9429 0.9441
1.6 0.9452 0.9463 0.9474 0.9484 0.9495 0.9505 0.9515 0.9525 0.9535 0.9545
1.7 0.9554 0.9564 0.9573 0.9582 0.9591 0.9599 0.9608 0.9616 0.9625 0.9633
1.8 0.9641 0.9649 0.9656 0.9664 0.9671 0.9678 0.9686 0.9693 0.9699 0.9706
1.9 0.9713 0.9719 0.9726 0.9732 0.9738 0.9744 0.9750 0.9756 0.9761 0.9767
548 APPENDIX A: Statistical tables

Table A.1 (Continued)

z 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09

2.0 0.9772 0.9778 0.9783 0.9788 0.9793 0.9798 0.9803 0.9808 0.9812 0.9817
2.1 0.9821 0.9826 0.9830 0.9834 0.9838 0.9842 0.9846 0.9850 0.9854 0.9857
2.2 0.9861 0.9864 0.9868 0.9871 0.9875 0.9878 0.9881 0.9884 0.9887 0.9890
2.3 0.9893 0.9896 0.9898 0.9901 0.9904 0.9906 0.9909 0.9911 0.9913 0.9916
2.4 0.9918 0.9920 0.9922 0.9925 0.9927 0.9929 0.9931 0.9932 0.9934 0.9936
2.5 0.9938 0.9940 0.9941 0.9943 0.9945 0.9946 0.9948 0.9949 0.9951 0.9952
2.6 0.9953 0.9955 0.9956 0.9957 0.9959 0.9960 0.9961 0.9962 0.9963 0.9964
2.7 0.9965 0.9966 0.9967 0.9968 0.9969 0.9970 0.9971 0.9972 0.9973 0.9974
2.8 0.9974 0.9975 0.9976 0.9977 0.9977 0.9978 0.9979 0.9979 0.9980 0.9981
2.9 0.9981 0.9982 0.9982 0.9983 0.9984 0.9984 0.9985 0.9985 0.9986 0.9986
3.0 0.9987 0.9987 0.9987 0.9988 0.9988 0.9989 0.9989 0.9989 0.9990 0.9990
3.1 0.9990 0.9991 0.9991 0.9991 0.9992 0.9992 0.9992 0.9992 0.9993 0.9993
3.2 0.9993 0.9993 0.9994 0.9994 0.9994 0.9994 0.9994 0.9995 0.9995 0.9995
3.3 0.9995 0.9995 0.9995 0.9996 0.9996 0.9996 0.9996 0.9996 0.9996 0.9997
3.4 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9998
3.5 0.9998 0.9998 0.9998 0.9998 0.9998 0.9998 0.9998 0.9998 0.9998 0.9998
3.6 0.9998 0.9998 0.9999

Tables A.2 and A.3 © C. Dougherty (2006). They may be reproduced subject to
attribution.

Table A.2 t distribution: critical values of t

Significance level

Degrees of Two-tailed test: 10% 5% 2% 1% 0.2% 0.1%

freedom One-tailed test: 5% 2.5% 1% 0.5% 0.1% 0.05%
 Introduction to Econometrics 549

Table A.2 (Continued)

Significance level

Degrees of Two-tailed test: 10% 5% 2% 1% 0.2% 0.1%

freedom One-tailed test: 5% 2.5% 1% 0.5% 0.1% 0.05%
550 APPENDIX A: Statistical tables

Table A.3 F distribution: critical values of F (5% significance level)

v1 1 2 3 4 5 6 7 8 9
v2
 Introduction to Econometrics 553

Table A.3 F distribution: critical values of F (1% significance level)

v1 1 2 3 4 5 6 7 8
v2
 Introduction to Econometrics 559

2 2
Table A.4 χ (chi-squared) distribution: critical values of χ

Significance level

Degrees of freedom 5% 1% 0.1%