Simple linear regression

(Normal model, confidence interval, hypothesis test)

MMA1402 - Regression and Time Series Modeling

Nanang Susyanto
Department of Mathematics, UGM
 ! = #! + #" % + &

Fitted line "!= −27877.06 + 126.33x
(fitted) residual
Degrees of freedom:
“Is there a (linear) relationship between overhead and
office size in the population?”
What is the distribution of the parameter estimates?
à Needs distributional assumption
Normal Model
!/ = #0 + #1 %/ + &/ with &/ ∼ , 0, / 2 , 0. 0. 2.
• Distribution of !/ is…
• variance / 2 : r.v. of errors about the line 4 = #0 + #1 %
• Least squares estimation of / 2 : dividing the sum of squares of the
residuals by the degrees of freedom

• residual standard error

Inference for #"

“Is there a (linear) relationship between overhead and office size in the
population?”

Based on the SLR model, no relationship ⇔

Assessing whether #1 = 0:
1. Confidence intervals
2. Hypothesis tests
Distribution of least squares estimator

• Estimator vs estimate
• Recall:
734
#61 = =⋯
733

• So, #61 ∼ ,(… )

Mean and variance #'"
Distribution of #'"
Confidence interval for #'"

• Recall

• Confidence intervals for #0 and #1 :

Example: 95% CI from audit SLR model

• 95% CI:

• margin of error:

• Interpretation:

• Conclusion:
Hypothesis tests

• significance level: < =

• test statistic:

• p-value:
• If p-value < 0.05
• If p-value ≥ 0.05
Example from audit SLR model

• Two-sided vs one sided tests

• The relationship between confidence interval and hypothesis tests

Looking Ahead

• MLE for normal distribution

• Properties of symmetric matrix