Question
Distinguish between ordinary least square method and indirect least square method of estimation. Specify the conditions under which indirect least method is applied.
Answer :
Word Count : 441
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In Applied Econometrics, the Ordinary Least Squares (OLS) method and the Indirect Least Squares (ILS) method are both used for estimating parameters of linear regression models, but they differ fundamentally in their approach and application. The OLS method is a direct estimation technique that aims to minimize the sum of squared differences between observed values and the values predicted by the model. It is widely used due to its simplicity and desirable statistical properties such as unbiasedness, consistency, and efficiency under the Gauss-Markov assumptions, which include linearity in parameters, zero conditional mean of errors, homoscedasticity, and absence of perfect multicollinearity. OLS provides straightforward estimates of the
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Distinguish between ordinary least square method and indirect least square method of estimation. Specify the conditions under which indirect least method is applied.