Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Yi = B1+B2X2i+B3X3i_ Nonstochastic form, PRF Yi = B1+B2X2i+B3X3i+ui stochastic B2, B3 called partial regression or partial slope coefficients B2 measures the change in mean value of Y, per unit change in X2 holding the value of X3 constant Yi = b1+b2X2i+b3X3i+ei SRF
Assumptions
Linear relationship Xs are non-stochastic variables. No linear relationship exists between two or more independent variables (no multicollinearaity). Ex:X2i = 3 +2X3 Error has zero expected value, constant variance and normally distributed RSS = e2 = (Yi i)2
= (Yi b1-b2X2i-b3X3i)2
Like 2-variable case, we can derive formulae for var(b1), var(b2) & var(b3) and hence their S.E.s We can also estimate 2 as 2 = e2/(n 3) Goodness of fit, R2 = ESS/RSS R2 = [b2yix2i+b3 yix3i]/yi2 0 R2 1
F test
If computed F value exceeds critical F value, we reject the null hypothesis that the impact of explanatory variables is simultaneously equal to zero Otherwise we cannot reject the null hypothesis It may happen that not all the explanatory variables individually have much impact on dependent variable (i.e., some of the t values may be statically insignificant) yet all of them collectively influence dependent variable (H0 is rejected in F test) This happen only we have the problem of multicollinearity
Specification error
In this example we have seen that both the explanatory variables are individually and collectively different from zero
If we omit any one of these explanatory variable from our model, then there would be specification error
What would be b1, b2 & R2 in 2variable model?
Specification error
i = -1336.09 + 12.7413X2i+85.7640X3i
(175.2725) (0.9123) (8.8019) p=0.000 0.000 0.000 R2 = 0.89, n =32
i = -191.66 + 10.48X2
(264.43) (1.79) R2 = 0.53
i = 807.95 + 54.57X3i
(231.95) (23.57) R2 = 0.15
R2 versus Adjusted R2
Larger the number of explanatory variables in the model, the higher the R2 will be However, R2 does not take into account dof Therefore, comparing R2 values of the two models with same dependent variable but different numbers of explanatory variables is essentially like comparing apples and bananas We need a measure of fit that is adjusted for the no. of explanatory variables in the model
R2 versus Adjusted R2
Such a measure is called Adj R2
If k > 1, Adj R2 R2, as the no of explanatory variables increases in the model, Adj R2 becomes increasingly smaller than R2 It enable us to compare two models that have same dependent variable but different numbers of independent variables In our example, it can be shown that Adj R2=0.88 < 0.89 (R2)
(n 1) R 1 (1 R ) (n k )
2 2
Variable Definitions
CHCONS - Chicken consumption in the US LDY - Log of disposable income in the US PC/PB - Price of Chicken relative to the Price of Best Red Meat
CHCONS
10.0
20.0
30.0
40.0
50.0
60.0
0.0
1966
1968
1970 1972
1974
1976 1978
1980
1982 1984
10.0000
9.0000
8.0000
7.0000
6.0000
LDY
5.0000
4.0000
3.0000
2.0000
1.0000
0.0000
Year
1.6000
1.4000
1.2000
1.0000
PC/PB
0.8000
0.6000
0.4000
0.2000
0.0000
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
Year
1983
60.0
50.0
CHCONS
40.0
30.0
20.0
10.0
LYD
60.0
50.0
40.0
CHCONS
30.0
20.0
10.0
0.0
0.0000
0.2000
0.4000
0.6000
0.8000
1.0000
1.2000
1.4000
1.6000
PC/PB
CHCONS = f(LDY)
Simple linear regression captures the relationship between CHCONS and LDY, assuming no other relationships This regression explains much of the change in CHCONS, but not everything The plotted regression line shows the hypothesized relationship and the actual data
CHCONS = f(LDY)
Coeff SE(b) R2 = 0.9641 F = 879.05 SSReg= 3639.12 (also called SSE)
60.00
50.00
40.00
CHCONS
30.00
CHCONS = f(LYD)
Actual Data
20.00
10.00
0.00
7.0000 7.5000 8.0000 8.5000 9.0000 9.5000
LYD
CHCONS = f(PC/PB)
Another simple regression examines the relationship between CHCONS and PC/PB
While the line explains some of the variation of CHCONS, there is more unexplained error
CHCONS = f(PC/PB)
Coeff SEb PC/PB -28.83 2.93 Const. 50.77 1.75
R2 = 0.746 SE(y) = 5.39 F = 97.14 df = 33 SSReg = 2818.32 SSResid = 957.42 (also called ESS) (also called RSS)
60.00
50.00
40.00
CHCONS
30.00
CHCONS=f(PC/PB)
Actual Data
20.00
10.00
0.00
0.0000 0.5000 1.0000 1.5000
PC/PB
CHCONS = f(LDY,PC/PB)
Coeff SEb
R2 = F = SSReg = (SSE)
60.0
50.0
40.0
CHCONS
30.0
Actual
CHCONS=f(LDY,PC/PB)
20.0
10.0
0.0
YEAR
Table 7.10, Gujarati Consider following demand function for money in US for 1980 1998
M t b1Yt rt e
b2 b3
ut
Where,
M = Real money demand Y = Real GDP r = Interest rate LTRATE: Long term interest rate (30 yr tr bond) TBRATE: 3 months tr bill rate