Gauss Markow Assumption

Reference: Jeffery M. Wooldridge.

Chapter two
ASSUMPTIONS UNDERLYING THE METHOD
OF LEAST SQUARES. Also Know as Gauss Markow
assumption

Assumption 1: Simple Linear Regression Model.
In the ppln model, the dependent variable Y,
is related to the independent variable X and
the error term.
Y =
0
+
1
x + u

Assumption 2: Random sampling
We have random sampling of size n, ((x,y):
1,2), following the population model
equation in assumption one.
Assumption 3: Sampl variation in the
explanatory variable.
The sample outcome on X, namely, (X, i=
1,2.n) are not all the same value.
Assumption 4: Zero conditional mean.
The error term has an expected value of zero
given any value of the explanatory variable.
E(U/X) = 0
Assumption 5: Homoskedasticity.
The error U has same variance given any
value of the explanatory variable.
Var (U/X): 2