Statistical Analysis of Management Data by Hubert Gatignon

Author:Hubert Gatignon
Language: eng
Format: epub, pdf
Publisher: Springer US, Boston, MA

(10.3)

This equation can be expressed in terms of the observed variables by replacing each unobserved variable with its expression as a function of the observed variable obtained from Eqs. (10.1) and (10.2):

(10.4)

or by placing the random error term at the end:

(10.5)

It should be noted that the error on the dependent variable y is similar to the error on the structural relationship. Indeed, if we had added an error term to Eq. (10.3), it would have been confounded with the measurement error of the dependent variable ν t .

Because these variables are not observed, only the relationship between the observed variables can be estimated. This can be done by using the ordinary least squares estimator of the regression of y t on x t :

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