7 Inference in the \(k\)-Variable Model

Section 6 computed the least squares estimates. This section asks how reliable they are, and how to test the hypotheses that economic theory poses. Most of those hypotheses are linear restrictions on the coefficients: an elasticity equals one, returns to scale are constant, a group of variables has no effect, two effects are equal. All of them are special cases of \(R\beta = r\), and one theorem, with one test statistic, handles them all.

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