Data TheoryUnrestrictedModel

t-statistics

Restricted Model(excludes independent

variables with low t-stats)

F-statistic

Data TheoryUnrestrictedModel

Examine t-statistics

Restricted Model(excludes independentvariables with t-stats

below critical-t)

F-statistic

F<Fcritical => do not reject H0F>Fcritical => reject H0

Finished Model

lower the critical-t

Data TheoryUnrestrictedModel

Restricted Model(excludes independentvariables with t-stats

below critical-t)

F-statistic with H0: excluded variablesdo not belong in model

F<Fcritical => do not reject H0F>Fcritical => reject H0

Finished Model

lower the critical-t

Are t-statisticscorrect? Test for•multicollinearity•heteroskedasticity