Introduction to simple linear regression.pptVIP

* * Trendline shows the positive relationship. Evidence of other variables? * Selected only. * The role of the two significant observations * If you see one, check if it is a mistake. * The role of the two significant observations * The role of the two significant observations * * Be wary of the scatter graph, it is not always perfect. Close to zero relationship, but there really is a more complex one. * Introduction to simple linear regression ASW, 12.1-12.2 Economics 224 – Notes for November 5, 2008 Regression model Relation between variables where changes in some variables may “explain” or possibly “cause” changes in other variables. Explanatory variables are termed the independent variables and the variables to be explained are termed the dependent variables. Regression model estimates the nature of the relationship between the independent and dependent variables. Change in dependent variables that results from changes in independent variables, ie. size of the relationship. Strength of the relationship. Statistical significance of the relationship. Examples Dependent variable is retail price of gasoline in Regina – independent variable is the price of crude oil. Dependent variable is employment income – independent variables might be hours of work, education, occupation, sex, age, region, years of experience, unionization status, etc. Price of a product and quantity produced or sold: Quantity sold affected by price. Dependent variable is quantity of product sold – independent variable is price. Price affected by quantity offered for sale. Dependent variable is price – independent variable is quantity sold. Source: CANSIM II Database (Vector v1576530 and v735048 respectively) Bivariate and multivariate models (Education) x y (Income) (Education) x1 (Sex) x2 (Experience) x3 (Age) x4 y (Income) Bivariate or simple regressio