In this section we concentrate our attention in the univariate linear regression model. In economics, we can find innumerable discussions of relationships between variables in pairs: consumption and real disposable income, labor supply and real wages and many more. However, the main interest in the study of this model is not its real applicability but the fact that the mathematical and the statistical tools developed for the two variable model are foundations of other more complicated models.
An econometric study begins with a theoretical proposition about
the relationship between two variables. Then, given a data set,
the empirical investigation provides estimates of unknown
parameters in the model, and often attempts to measure the
validity of the propositions against the behavior of observable
data. It is not our aim to include here a detailed discussion on
econometric model building, this type of discussion can be found
in Intriligator (1978), however, along the sequent subsections we
will introduce, using monte carlo simulations, the main results
related to estimation and inference in univariate linear
regression models. The next chapters of the book develop more
elaborate specifications and various problems that arise in the
study and application of these techniques.