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    Chapter 3 & 4

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    fahim ur rahman
    This chapter discusses simple linear regression analysis. It covers the classical linear regression model, ordinary least squares estimation method, goodness of fit testing, and how to estimate simple regressions in EViews. Key concepts covered include computing the regression line from sample data, understanding properties of estimated coefficients, residual standard error interpretation, and coefficient of determination. Hypothesis testing of individual coefficients and overall model significance is also introduced.

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    Chapter 3 & 4

    Uploaded by

    fahim ur rahman
    53 views27 pages
    This chapter discusses simple linear regression analysis. It covers the classical linear regression model, ordinary least squares estimation method, goodness of fit testing, and how to estimate simple regressions in EViews. Key concepts covered include computing the regression line from sample data, understanding properties of estimated coefficients, residual standard error interpretation, and coefficient of determination. Hypothesis testing of individual coefficients and overall model significance is also introduced.

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    economics introduction

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    This chapter discusses simple linear regression analysis. It covers the classical linear regression model, ordinary least squares estimation method, goodness of fit testing, and how to estimate simple regressions in EViews. Key concepts covered include computing the regression line from sample data, understanding properties of estimated coefficients, residual standard error interpretation, and coefficient of determination. Hypothesis testing of individual coefficients and overall model significance is also introduced.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    53 views27 pages

    Chapter 3 & 4

    Uploaded by

    fahim ur rahman
    This chapter discusses simple linear regression analysis. It covers the classical linear regression model, ordinary least squares estimation method, goodness of fit testing, and how to estimate simple regressions in EViews. Key concepts covered include computing the regression line from sample data, understanding properties of estimated coefficients, residual standard error interpretation, and coefficient of determination. Hypothesis testing of individual coefficients and overall model significance is also introduced.

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    Download as ppt, pdf, or txt
    of 27

    Applied Econometrics

    Chapter 3:
    Simple
    Regression
    Applied Econometrics
    Simple Regression

    1. Introduction to the Classical Linear Regression


    Model
    2. The OLS Method of Estimation
    3. The Overall Goodness of Fit
    4. Hypothesis Testing
    5. How to Estimate a Simple Regression in EViews
    6. Applications and Examples
    Applied Econometrics
    Learning Objectives

    Compute the equation of a simple regression line


    from sample of data, and interpret the slope and
    intercept of the equation.
    Full understanding of the simple OLS method of
    estimation and discussion of properties of
    estimated coefficients.
    Computation of standard error of estimate and
    interpretation of its meaning and use in Hypothesis
    Testing.
    Understanding and interpreting the R2
    Applied Econometrics
    Introduction of OLS

    For specification of the best model lot of working is required


    for appropriate decision that how many and whose variables
    should be included in the model.
    Regression analysis is the process of constructing a
    mathematical model or function that can be used to predict
    or determine one variable by another variable.
    Key issue here is direction of causation of the two
    variables, or which variable depends on the other.
    Therefore we have two cases of variables:
    dependent (usually denoted by Y)
    independent /explanatory/regressor (usually
    denoted by X)
    Applied Econometrics
    Reasons behind the Existence of Disturbance/Error
    term/Residual: Residual (ut ) exists in the model due to
    following reasons which may affect the results reliability.
    Omission of Explanatory Variables: There might be other
    factors (other than Xt) affecting Yt. This may be because we
    dont know or we exclude them even we know because we
    might be unable to measure them.
    Aggregation of Variables: To avoid having too many
    variables and therefore we attempt to summarize in aggregate
    a number of relationships in only one variable.
    Model Misspecification: we might have a misspecified
    model in terms of its structure. E.g. it might be Yt is not
    affected by Xt, but it is affected by its previous value (Xt-1)
    Applied Econometrics
    Cont.
    Functional Misspecification: The relationship
    between X and Y might be non-linear. It also
    become the reason of error term.
    Measurement Errors: If the measurement of one
    or more variables is not correct then errors appear
    in the relationship and these contributes to the
    disturbance term.
    Applied Econometrics
    The Scatter Plot
    Applied Econometrics
    Four Ways of Fitting a Line in the Data

    By eye
    Connecting the first with the last observation
    Take the average of the first two and the
    average of the two last and connect
    Apply Ordinary Least Squares
    Applied Econometrics
    Derivation of Regression Models or OLS
    Applied Econometrics

    The Coefficient of Determination

    The proportion of variability of the dependent


    variable accounted for or explained by the
    independent variable in a regression model.

    R2 and takes values from 01.

    10
    Applied Econometrics
    Hypothesis Testing
    Testing individual coefficients (t-tests)
    Testing for the overall significance (F-test)
    Applied Econometrics
    Applied Econometrics
    Applied Econometrics
    Applied Econometrics
    Applied Econometrics
    Applied Econometrics
    Applied Econometrics
    Applied Econometrics
    Applied Econometrics
    Applied Econometrics
    Applied Econometrics
    Applied Econometrics
    Applied Econometrics
    Applied Econometrics
    The Regression Line
    Applied Econometrics
    Regression in EViews (1) (1)

    Step 1 Open EViews.

    Step 2 Choose File/New/Workfile to create a new file.

    Step 3 Choose Undated or Irregular and specify


    number of observations (in this case 20). A new
    window appears which automatically contains a
    constant (c) and a residual (resid) series.
    Applied Econometrics
    Regression in EViews (2)
    Step 4 In the command line type:
    genr x=0 (press enter)
    genr y=0 (press enter)
    which creates two new series named x and y that contain
    zeros for every observation.
    Open x and y as a group by selecting them and double
    clicking with the mouse.
    Step 5 Either type the data in EViews or copy/paste the
    data from Excel. To edit the series press the edit +/
    button. After editing the series press the edit +/ button
    again to lock or secure the data.

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