Week 3

Question 1

What is the main purpose of imposing and testing linear restrictions in econometrics?

Answer 1

to test if theoretical restrictions are satisfied or meaningful

and implement statistical models to reduce problems with associated with multicollinearity

Question 2

What is the standard statistical test used to assess if linear restrictions are valid?

Answer 2

the F-test is used to test if there is a significant difference between an unrestricted regression model and a restricted regression model where the linear restrictions have been imposed