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Advanced Econometrics (I) Chapter 9 - Hypothesis Testing Fall 2012
Advanced Econometrics (I) Chapter 9 - Hypothesis Testing Fall 2012
Advanced Econometrics (I) Chapter 9 - Hypothesis Testing Fall 2012
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Wei Zhong
WISE & SOE Page 1 of 33
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Review: T Test
Steps for Hypothesis Testing (T-Test)
(1) Parameter of interest and the associated hypothesis testing.
H0 : µ = µ0 , vs H1 : µ 6= µ0
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(2) Test statistic and its distribution under H0 is true. Title Page
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X̄n − µ0
T = √ ∼ tn−1, under H0 is true J I
Sn/ n Page 2 of 33
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x̄n −µ
(3) Compute the observed test statistic T = √0
sn / n Full Screen
(4) Apply Method 1 to construct critical region for a fixed sig- Close
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Case 1. Two Independent Samples
with Known Population Variances.
• Example:
– The alkalinity, in milligrams per liter, of water in the
upper reaches of rivers in a particular region is known Home Page
a river in the region with the mean x̄1 = 99.0 and fifteen Go Back
in the upper reaches of the same river x̄2 = 80.5. Full Screen
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where σ12 = 252, σ22 = 102.
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(1) Parameters of interest are µ1 and µ2 and the associated Page 5 of 33
hypothesis testing.
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Case 1. Two Independent Samples
with Known Population Variances.
• Solution:
(2) Test statistic and its distribution under H0 is true.
Since X1 ∼ N (µ1, σ12), X2 ∼ N (µ2, σ22), we have Home Page
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X̄1 ∼ N (µ1, σ12/n1), X̄2 ∼ N (µ2, σ22/n2),
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σ12 σ22
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σ12 σ22
n1
+ n2 Quit
Case 1. Two Independent Samples
with Known Population Variances.
• Solution:
(2) We propose the test statistic:
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Intuitively, if Z is large enough, we will reject the null H0.
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Case 1. Two Independent Samples
with Known Population Variances.
• Solution:
(4) Critical region {z > zα = 2.326}. Note this is one-sided
critical region for the one-tailed alternative hypothesis.
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The observed test statistic value z0 does lie in the critical
region so H0 is rejected.
Case 1. Two Independent Samples
with Known Population Variances.
• Solution:
(4) Or we may compute the p-value
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suggest that the true mean alkalinity of water in the lower Full Screen
reaches of the river is greater than that in the upper reaches. Close
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Case 2. Two Independent Samples
with Unknown but Equal Popula-
tion Variance.
• Example:
– Mr. Brown is the owner of a small bakery in a large
town. He believes that the smell of fresh baking will Home Page
– From the records, he get x̄1 = 202.18 and σ̂12 = 115.728, Go Back
x̄2 = 188.47 and σ̂22 = 156.653, where 1=open and Full Screen
2=closed. Close
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H0 : µ1 = µ2 , vs H1 : µ1 > µ2
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Case 2. Two Independent Samples
with Unknown but Equal Popula-
tion Variance.
• Solution:
(2) Test statistic and its distribution under H0 is true. Home Page
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and we know X̄1 and X̄2 are independent, thus, Page 12 of 33
σ2 σ 2
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X̄1 − X̄2 ∼ N µ1 − µ2, + ,
n1 n2 Full Screen
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(X̄1 − X̄2) − (µ1 − µ2)
⇒ q ∼ N (0, 1) Quit
1 1
σ n1
+ n2
Case 2. Two Independent Samples
with Unknown but Equal Popula-
tion Variance.
(2) However, the same variance σ 2 is unknown, we use the sam-
ple variance to replace it. Note that two independent sam-
ples have the same variance, we can use the both samples Home Page
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(n1 − 1)σ̂12 + (n2 − 1)σ̂22
σ̂p2 = . J I
n1 + n2 − 2
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202.18 − 188.47 JJ II
t0 = q = 2.63.
1
11.67 10
+ 101 J I
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(4) Critical region {t > tα,n1+n2−2 = 1.734}. Note this is one- Go Back
sided critical region for the one-tailed alternative hypothe- Full Screen
sis. The observed test statistic value t0 = 2.63 does lie in
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the critical region so H0 is rejected.
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Case 2. Two Independent Samples
with Unknown but Equal Popula-
tion Variance.
• Solution:
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Case 2. Two Independent Samples
with Unknown but Equal Popula-
tion Variance.
• Solution:
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(4) Or we may compute the p-value
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then we reject H0, at the 5% level of significance.
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(5) Conclusion: At the 5% level of significance, we reject
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H0. Thus, there is evidence, at the 5% level of significance,
to suggest that the smell of fresh baking will encourage Close
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where variances σ12 and σ22 is unknown. Let n = 10 and
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m = 15 denote two sample sizes.
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1. First, we use the F-Test (Chapter 6) to test the equality of
two normal population variances. Go Back
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(1) Parameters of interest are σ12, σ22 and the associated hy-
pothesis testing. Close
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p p
should be close to 1, because S12 → σ12 and S22 → σ22 as Full Screen
S12 S12/σ12 JJ II
F = 2 = 2 2 J I
S2 S2 /σ2
(n−1)S12 /σ12 Page 20 of 33
n−1 χ2n−1/(n − 1)
= (m−1)S22 /σ22
∼ 2 ∼ Fn−1,m−1. Go Back
χm−1/(m − 1)
m−1 Full Screen
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F0 = s21/s22 2 2
= 6 /3 = 4.
Case 3. Two Independent Samples
with Unknown Unequal Population
Variances.
• Solution (Cont’d):
(4-1) Construct critical region for a fixed significance level α: Home Page
Reject the hypothesis H0 : σ12 = σ22 at the significance
level α = 0.05 if Title Page
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F >C Fn−1,m−1 , α2 , or F < C Fn−1,m−1 ,1− α2 J I
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Since the p-value < α = 0.05, we reject H0.
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(5) Conclusion: At the 5% significance level, we may re-
ject H0. That is, there is evidence, at the 5% significance Go Back
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Case 3. Two Independent Samples
with Unknown Unequal Population
Variances.
• Solution:
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2. Next, we will test the hypothesis of the equality of two
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normal means with unknown unequal variances. Here, we
denote n1 = 10 and n2 = 15. JJ II
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(1) Parameters of interest are µ1 and µ2 and the associated
hypothesis testing. Page 23 of 33
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H0 : µ1 = µ2 , vs H1 : µ1 6= µ2
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Case 3. Two Independent Samples
with Unknown Unequal Population
Variances.
(2) Test statistic and its distribution under H0 is true.
Since X1 ∼ N (µ1, σ12), X2 ∼ N (µ2, σ22), we have Home Page
Title Page
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σ12 σ22
X̄1 − X̄2 ∼ N µ1 − µ2, + , Go Back
n1 n2
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σ12 σ22
n1
+ n2 Quit
Case 3. Two Independent Samples
with Unknown Unequal Population
Variances.
(2) Since both variances are unknown and unequal, naturally,
we may use their sample variances to replace the corre-
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sponding variances. Then, we can propose the test statistic:
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X̄1 − X̄2
T =q 2 ∼ tν , under H0 is true, JJ II
S1 S22
n1
+ n2 J I
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where ν is the estimated degree of freedom defined by
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203 − 206
t0 = q 2 = −1.464. Title Page
6 32
10
+ 15 JJ II
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(4) To construct the critical region or compute the p-value, we Page 26 of 33
need compute the estimated d.f.
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Case 3. Two Independent Samples
with Unknown Unequal Population
Variances.
(4) Critical region {|t| > tα/2,ν = t0.025,12 = 2.18}. Note this is
two-sided critical region for the two-tailed alternative hy-
pothesis. The observed test statistic value t0 = −1.464
doesn’t lie in the critical region so H0 can not be rejected. Home Page
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Case 3. Two Independent Samples
with Unknown Unequal Population
Variances.
• Solution:
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(4) Or we may compute the p-value (two-sided)
Title Page
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then we can not reject H0, at the 5% level of significance.
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(5) Conclusion: At the 5% level of significance, we can not
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reject H0. Thus, there is no evidence, at the 5% level of
significance, to suggest that there is some difference in the Close
table below records the sales, in thousands of pounds, for a Title Page
one-month period before and a one-month period after the
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advertising campaign, for each of eleven regions.
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Case 4. Two Dependent Paired
Samples with Unknown Variance.
• Example: Determine, at the 5% significance level,
whether an increase in mean sales has occurred by using
the T-Test for paired values.
• Solution: Two samples are dependent, but they are Home Page
D = X1 − X2 , Go Back
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D ∼ N (µd, σd2).
Case 4. Two Dependent Paired
Samples with Unknown Variance.
(1) Parameters of interest are µ1 and µ2 and the associated
hypothesis testing.
H0 : µ1 = µ2 , vs H1 : µ1 > µ2 , Home Page
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H0 : D = 0, vs H1 : D > 0.
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D̄n
T = √ ∼ tn−1, under H0 is true. Close
σ̂d/ n
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Full Screen
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Case 4. Two Dependent Paired
Samples with Unknown Variance.
(4) Or we may compute the p-value
p-value = P (t11−1 > t0) = P (t10 > 3.13)
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= 0.0053 < α = 0.05,
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