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econometrics than any other parametric family.

One reason for this is that the sum of a large number of

independent random variables has an approximately normal

distribution.

Normal distributions are symmetrical about the mean, and the

normal probability curve is the familiar bell-shaped curve. The

mean, median, and mode are equal for this family of

distributions

Shape of the Normal Distribution

0.3

y0.2

0.1

0

-4 -2 2 u 4

Normal Distribution

mean x and variance x2 is written as X ~ N(x,

x2).

variable Z with mean 0 and variance 1is written

as Z ~ N(0,1).

Normal Distribution

variable X with mean x and variance x2 is

given by

2

1 X

1 i x

2 x

P( X i ) e

2 2

• The PDF of a Standard Normal random variable

Z is given by 1 1 Z 2

P( Z i )

i

2

e

2

Properties of N.D.

around its mean value.

• 2. The The PDF of the distribution is highest at

its mean value. That is, the probability of

obtaining a value of a normally distributed r.v. far

away from its mean value becomes

progressively smaller.

Properties of N.D. (cont.)

normal curve lies between x x

• Approximately 95% of the area under the

normal curve lies between x 2 x

• Approximately 99.7% of the area under the

normal curve lies between

x 3 x

Properties of N.D. (cont.)

• 4. A normally distributed random variable is fully

described by its two parameters: mean and

variance.

• 5. A linear combination of two or more normally

distributed random variables is itself normally

distributed.

• 6. For a normal distribution, skewness is zero

and kurtosis is 3.

Properties of N.D. (cont.)

moment)/(cube of the 2nd moment) and kurtosis

is (fourth moment)/square of the 2nd moment)

• 7. Z-transformation:

• X ~ N(x, x2) then (X -x)/x. ~ N(0,1)

Useful Results

1. Suppose that X ~ N , 2 then the average value

of a sample of N observations of X is also normally distributed.

•

That is, ~ N , N .

2

2. Central Limit Theorem: Suppose that X ~ unknown , 2 then the

average value of a sample of N observations of X is approximately

2

normally distributed.That is, ~ N , N .

3. t Statistics: Suppose that X ~ N , 2 then the

t statistic for the chance that will be less than a

* X *

given value X is t = .

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