Introduction to econometrics II eco 356 faculty of social sciences course guide course Developers: Dr. Adesina-Uthman
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- 2.3.7.0 SUMMARY
| INTRODUCTION TO ECONOMETRICS II ECO 306 NOUN 84 …[2.73] And regress on price. This is a simple regression, so multicollinearity has been eliminated. There are, however, two possible problems with this technique. First, the estimate of depends on the accuracy of the estimate of b 2 ', and this of course is subject to sampling error. Second, you are assuming that the income coefficient has the same meaning in time series and cross-section contexts, and this may not be the case. For many commodities, the short-run and long-run effects of changes in income may differ because expenditure patterns are subject to inertia. A change in income can affect expenditure both directly, by altering the budget constraint, and indirectly, through causing a change in lifestyle, and the indirect effect is much slower than the direct one. As a first approximation, it is commonly argued that time series regressions, particularly those using short sample periods, estimate short-run effects while cross-section regressions estimate long-run ones. For the indirect methods to alleviate multicollinearity problems. If the correlated variables are similar conceptually, it maybe reasonable to combine them into some overall index. 2.3.7.0 SUMMARY In this unit, we discussed the multiple regression model, a model in which there is more than one descriptive variable but a direct extension of the simple regression model having two new dimensions. We introduced the arrangement of flow for the multiple regression analysis and started with the derivation of formula by showing the linkage of the simple regression model and the multiple regression. However, we briefly discussed on interpretation and properties of multiple regression coefficients. For more understanding, the student may use the reference materials to lookup estimation procedures using values and presentation of results, aspects of arrangement of flow for the multiple regression analysis not discussed. Finally, the concept of multicollinearity as an existence of linear relationship in the midst of regressors was equally discussed in this unit. Students are shown two ways to alleviate multicollinearity being a problem associated with CLRM. |