ECON 104 Lecture Notes - Lecture 31: Null Hypothesis

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Start with linear function then nonlinear functions of str. Will see whether adding the nonlinear terms makes an economically important difference and whether it is really different in an economically meaningful way. Economically meaningful = if you first found out that test scores increase by 3, but now you find that it increases by 3. 1. Impact that can be credibly constructed by formal test -> test whether nonlinear terms are stat signif or not. If original specification ____ then you should have interaction term with each power of str. First regression = baseline linear regression, regressing test scores on str and pctel is the continuous variables and % eligible for subsidised lunch. Second regression = add average district (previously we found that it isn"t statistically significant) Now we are adding log of avg district income -> positive signif effect. Whether we are looking at high %el or low % el. D*x not stat signif, according to 3rd regression, ____

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