Category Springer Texts in Business and Economics

Residual Analysis

A plot of the residuals of the regression is very important. The residuals are consistent estimates of the true disturbances. But unlike the ui’s, these ei’s are not independent. In fact, the OLS normal equations (3.2)and (3.3) give us two relationships between these residuals. Therefore, knowing (n — 2) of these residuals the remaining two residuals can be deduced. If we had the true ui’s, and we plotted them, they should look like a random scatter around the horizontal axis with no specific pattern to them. A plot of the ei s that shows a certain pattern like a set of positive residuals followed by a set of negative residuals as shown in Figure 3.6(a) may be

Подпись: Figure 3.5 95% Confidence Bands

indicative of a violation of one of the 5 assumptions imposed on the model, or simply indicating a wrong functional ...

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