Difference Between The Regression Coefficients Essay

Difference Between The Regression Coefficients - Essay Example Suppose we want to test the autoregression of the dependent variable expenditure on the independent variable income we have to run the procedure REGRESS in STATA. Let us proceed as follows with two time periods with dependent variable expenditure (exp) and independent variable income (income):. by sort time per regress exp income. regress exp income if time per (time period 0) for eg.1987 to 1996. regress exp income if time per (time period 1) for eg.1997 to 2006To combine both in the constrained model, Expenditure is regressed on income for both time periods together as follow: . regexp income Null hypothesis: The regression coefficients do not differ significantly for the two time periods time period 0 and time period 1. Alternative hypothesis: The regression coefficients differ significantly for the two time periods time period 0 and time period 1. Chow test is being considered as an important tool in predicting the differences between the two regression coefficients when the grou ps are heterogeneously different. Even with the impact of dummy variables Chow test seems to be more robust in predicting the significant difference between two regressions under homoscedastic situations. Chow test is applicable in heteroscedastic situations.Breusch – Pagan test is used in testing whether heteroscedasticity is present in a linear regression model. It is also used to test whether the estimated variance of the residuals from regression equation is dependent on the values of independent variable values.