
MATLAB: An Introduction with Applications
6th Edition
ISBN: 9781119256830
Author: Amos Gilat
Publisher: John Wiley & Sons Inc
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Transcribed Image Text:In a simple linear regression model y = Bo + B12 + u. the conditional mean assumption E[ula = 0
implies that:
O The explanatory variable is correlated with unobserved variables
O The sample used for the estimation is random
O The expected value of the error term is equal to zero
O The fitted values correspond to the expected values of y conditional on x
Expert Solution

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This means that no matter which value we choose for X , the error term u must not show any systematic pattern and must have a mean of 0 .
Step 1
Assumption :The Error Term has Conditional Mean of Zero
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