Question

Q3). Explain the term BLUE in ordinary least square (OLS) analysis.

Answer 1

BLUE in ordinary least square (ols) analysis stands for the Best linear unbiased estimator. It's also known as the gauss-markov theorem.

The "Best" refers to the minimum variance of the estimator it's refers that the OLS estimator has the minimum variance among all class of other linear unbiased estimators of the unknown population parameter. Best refers to the efficiency of the OLS estimator.

Linear refers to the linear in parameters, the OLS estimator is the linear function of the dependent variable which are linearly combined using weights that are a non-linear function of the values of X (the regressors or explanatory variables).

Unbiasedness property of OLS estimator states that the average value of all coefficients ( alpha & beta) from the different samples estimated using OLS estimator will be equal to the actual value of population parameter. Estimator is the method or formula whereas estimates is the value of coefficient dervied ith the help of estimator.