7/25/2018 A Brief Interpretation of Output of Simple Regression - Hassan

Hassan

A Brief Interpretation of Output of Simple

Regression
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(1)
number of observations: It must be greater than the 'number of
Number of variables plus 1'. Here we want to estimate for 1 variable only, so number of observations
must be 3 or more , and we have 41 observations it is good.
It is better to have Large number of observations to get a good result. (like 100 or more observations.
(The larger the better )
(2) and (3)
C is the constant and its value is 0.155798. This result says that if there is no X, or say if X is zero then,
value of Y is 0.155798.

(4)
0.422690 is standard error of 0.155798. Standard error measures how reliable the coefficient 0.155798
is. you can perform hypothesis test for 0.155798 and confidence interval with this value later. (The
smaller the better)

(5)
0.368588 is t-Stattistic for coefficient 0.155798

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7/25/2018 A Brief Interpretation of Output of Simple Regression - Hassan

If you divide coefficient by its standard error you will get its t-statistic. 0.155798/0.422690=0.368588.
So 0.368588 is the t-Stattistics for 0.155798
T statistics tells us whether coefficient is significant or not. If absolute t-statistics (without positive or
negative sign) is greater than the critical value of T distribution then coefficient is significant. Insignificant
otherwise. For instance, t-critical value for 41 observations and two parameters is 1.685 . since 0.368588
is not greater than 1.685 the coefficient 0.155798 is not significant. However, for now you don’t need
to perform tests using t-statistics because Eviews calculates P-values for you which is easier to
calculate the significance .
(6)
0.7144 is P-value of t-Statistics
It tells us whether the coefficient is significant or not. It is easier than the (5) If P-value is 0.01 or smaller
than 0.01 then, coefficient is significant at 1% level meaning that the estimated coefficient is very strongly
significant. And if it is 0.05 or smaller than 0.05 than the coefficient is also strongly significant at 5% level.
If it is 0.10 or smaller, then, the coefficient is significant but not so strong as previous two. In the table P-
value is 0.7144 which means that the of 0.155798 is not significant.
(7)
X is independent variable, the variable whose effect on Y you want to test
(8)
The coefficient for the independent variable. It is the most important part of this table. It tells us how much
the dependent variable change if the X change 1 unit. The estimated value 1.025555 means that if X
increase by 1 unit the Y increases by 1.025555 unit and if X decreases by 1 unit the Y decreases
by 1.025555 unit. Please note, the coefficient is positive it means the relation between X and Y is
positive or X has a positive effect on Y . If you find a negative value then it means they have a negative
relation or X has negative impact on Y.
(9) standard error for 1.025555. same explanation as (4)
(10) T-statistics for 1.025555. same explanation as (5)
(11) P-value of T-statistics (1.025555) same explanation as (6)
note, here P-value is 0.0000 this is smaller than 0.01. it implies that the the coefficient 1.025555 is
strongly significant (at 1% significant level). Now you can say variable X significantly affects Y, or
Variable X has a statistically significant effect on Y.

(12) R-squared :
It is always between 0 and 1 and generally positive. It tells you how much successful your model is
in predicting . A higher R-square is better. In very poor model R square is close to zero like 0.03 etc.
R-squared is found to be 0.79193. it implies that about 79% of changes in Y are explained by the
changes in independent variable X.
(13) Adjusted r square :
It is always equal to or smaller than the R-squared. It does the same job as R-squared does, measuring
how much good your model is in predicting. But it has a Specialty , that is, if you add more variable even
irrelevant variable R squre incresase but adjusted r squae doesn’t. Therefore adjusted R square is
kind of smarter than the R square ;)
The higher the adjusted r square (close to 1) the better the model. Sometimes in a very poor
model adjusted R-square become negative . A negative r square is considered as zero r square .
(14) and (14) S.E. of regression and Sum squared resid. :
Both measure how much the estimated Y differ from actual Y ( actual Ys are the value of Y in Y series of
your data file). Of course, you know, it is not good if they differ too far from each other. A smaller S.E. of
regression and a smaller Sum squared resid are the better for any model.
Note: S.E. of regression is calculated by dividing the Sum squared resid with df hence, In a regression
with very large number of observation S.E. of regression become very small.
(15) Log likelihood:
It is useful when you compare two nested models. You’ll always find this value negative. a higher value
is better for example -40 is better than -90. A negative value but closer to zero indicates a best fitting
model. And you will choose a model from two models that has a higher log-likelihood.
(16) F-statistic :

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7/25/2018 A Brief Interpretation of Output of Simple Regression - Hassan

It is used for testing the overall significance of a model specially in a model where independent variables
are more than one. Do all the independent variables in the model significantly affect the dependent
variable ? F-statistics will answer this question. If F-statistics is greater than the F-critical then you can
say that all the variables are significant . (the F-critical values are available in last pages of Econometrics
and Statistics books)
(17) Prob(F-statistic):
However you don’t need to check F-statistic and F-critical value. By looking to the Prob(F-statistic) you
can easily check overall significance of all independent variables. If the Prob(F-statistic) is equal or
smaller than 0.01 you can say that all the variables jointly in the model significantly affect dependent
variable at 1% significance level. If it is equal or smaller than 0.05 you can say that all the variables
jointly in the model significantly affect the dependent variable at 5% significance level. And if it is equal to
or smaller than 0.10 this time you can say that all the variables jointly in the model are significantly affect
dependent variable at 10% significance level.

(18) Mean dependent var:

simply it is the average of Y the dependent variable.
(19) S.D. dependent var :
it measures how much the values of Y differe from its average value.

(20)Akaike info criterion (21)Schwarz criterion (22)Hannan-Quinn criter :

They are calculated with almost same formulas using log-likelihood and are called MODEL SELECTION
CRITERIA. Smaller values are preferred. If you have different models to compare, A preferred model is
the model with smaller value of (AIC), (SC) and (HQ) or with smaller value of any two of them. However
AIC is best used for Time series models.

(24) Durbin-Watson stat:

It tells us whether our model suffer ‘serial correlation problem’
If it is close to 2 ; No serial correlation in the model
If it is close to 0 ; positive correlation in the model
If it is close to 4 ; Negative correlation in the model
It is better if we get the Durbin-Watson stat near to 2 such as 1.70, 2.01, 2.20 etc. In our model we
found 1.69882 indicating no serial correlation in the model.

Important Note !
The purpose of this post is to give the basic idea about the results of a simple regression model
computed by Econometric software. (I have used Eviews). So, some of my comments about some results
are too straightforward. For example a ''higher R-square is better'' does not make sense if you are
dealing with non-stationary variables.

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4 Comments

Add a comment...

Muhammad Azam
Great job. My queation is that some researchers report many non-significant variables in the final mode
the acceptable criteria for the significance level <0.05 is normally not achieved for all variables and one
four independents having p-valuesfrom 0.00 to 0.66 and one has a wrong sign. I have spent nights tryin
Correlations dont work in time series (1960-2000) to find Multicollinearity. Second Eiews selects lags au
setting maximum lags and when should we go for different langs for dependent vs independent variable
Like · Reply · 1 · 1y

Resat Ceylan
dear professor, i have one dependet variable and three independent variables. so i want to check wald
and -c(7)/c(2)=-c(8)/c(2) is it true? thanks...
Like · Reply · 1y

Iqra Akram
Hi I am facing the same problem. did you figure it out?? and how do we make multiplier graph?
Like · Reply · 31w

‫ﻋﻣﺎد اﻟدﯾن أﺣﻣد اﻟﻣﺻﺑﺢ‬

Dear Prof,
How can we estimate the threshold (tau) parameter in NARDL Model
Thanks
Imadeddin Almosabbeh
Like · Reply · 1 · 37w

Hassan Mehmood
Sir i need little of your help regarding Nardl, in eviews and stata which one will you prefer for NARDL.?
Like · Reply · 3w

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