Assumptions of the Classical Linear Model(CLm) So far, we know that given the Gauss Markov assumptions, ols iS BLUE e In order to do classical hypothesis testing we need to add another assumption(beyond the Gauss-Markov assumptions) ◆ Assume that u is independent ofxI,x2,…,xk and u is normally distributed with zero mean and variance 02: u- normal(0, 0) Economics 20- Prof andersonEconomics 20 - Prof. Anderson 2 Assumptions of the Classical Linear Model (CLM) So far, we know that given the Gauss￾Markov assumptions, OLS is BLUE, In order to do classical hypothesis testing, we need to add another assumption (beyond the Gauss-Markov assumptions) Assume that u is independent of x1 , x2 ,…, xk and u is normally distributed with zero mean and variance s 2 : u ~ Normal(0,s 2 )