Assumptions of the Classical Linear Regression Model (CLRM) – With Clear Examples
The Classical Linear Regression Model (CLRM) is the foundation of econometrics. It ensures that Ordinary Least Squares (OLS) estimators are BLUE — Best Linear Unbiased Estimators. For this to hold true, certain assumptions must be satisfied. Let’s explore them step by step. 1. Linearity in Parameters 2. Zero Mean of Error Term 3. No Correlation […]
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