1) An Overview of Regression Analysis Flashcards
Regression Analysis
ß0
is the constant of intercept term; it indicates the value of Y when x equals 0
ß1
is the slope coefficient; and it indicates the amount that Y will change when X increases by one unit
an equation is linear if…
plotting the function in terms of X and Y generates a straight line
A stochastic error term is a term that is added to a regression to…
introduce all of the variation in Y that cannot be explained by the included X’s
Unexplained variation probably comes from…
sources such as omitted influences, measurement error, incorrect functional form or purely random and totally unpredictable occurrences.
By “random” the textbook means….
something that has its value determined solely by chance
There are 4 possible sources of variation that require stochastic error term
1) Many minor influences on Y are omitted from the equation
2) It is virtually impossible to avoid some sort of measurement error in the dependent variable
3) The underlying theoretical equation might have a different functional for (or shape) than the one chose for regression.
4) Al attempts to generalize human behavior must contain at least some amount of unpredictable or purely random variation
What is the deterministic component of the regression expression?
B0 + B1*X
What changes from observation to observation?
The coefficients do not change, but the Value of Y,X and e do.
Multivariate regression coefficients…
serve to isolate the impact on Y of a change in one variable from the impact on Y of changes in the other variables
The ability of regression analysis to measure the impact of one variable on the dependent variable, holding…
constant the influence of the other variables in the equation is a tremendous advantage.
When is a dummy variable useful?
When we want to quantify a concept that is inherently qualitative (like gender)
The estimated regression coefficients are…
empirical best guesses of the true regression coefficients and are obtained from data from a sample of Ys and Xs
Estimated coefficients are used…
to determine Y hats, the estimated or fitted value of Y
“Y hat i” is…
the estimated value of an observed Y, and it represents the value of Y calculated from the estimated regression equation for the i-th observation.
What is the residual?
It is the difference between the estimated value of the dependent variable and the actual value of the dependent variable
The smaller the residuals…
the better the fit and the closer estimated Ys will be to the observed Ys
The difference between an observed data point and the true line is the…
value of the stochastic error term
Cross Sectional Data is?
All of the observations are from the same point in time and represent different individual economic entities from that same point in time
