In the introduction to regression, we suggested that the
standard model of competitive equilibrium predicts
a statistical hypothesis
about the relationship between minimum wages and employment.
Many predictions of economic theory become converted to
statistical hypotheses about regression coefficients.
For the LRM we can write the
5 required elements of
a hypothesis test as:
Specifying a Hypothesis Test of a Regression Coefficient
See hypothesis testing for a general
review of what a hypothesis test does.
Notice that this form lists the five required elements of
a properly specified hypothesis test. We know the distribution
of the test statistic under H0 is the t distribution under
assumptions A0-A7 as discussed in class. The researcher choses
ahead of time. Before even looking
at the data everything above the "------" can be specified. The only
components of the hypothesis test that depend upon the data are
the value of the test statistic in the sample and the actual decision.
(where j = 1 or 2)
- Test statistic
Its distribution under
- Significance level:
Critical Region: reject H0 if t >
- Computed Value of the test statistic: ???
- Decision: Reject if the computed value lies in the Critical Region
Otherwise, Fail to Reject
Tutorial Week 4 provides
the steps necessary to complete a hypothesis test in Stata.