Regression Analysis: Theory and Estimation
Our first basic tool in econometrics is regression analysis. In regression analysis, we estimate the relationship between a random variable Y and one or more variables Xi. The variables Xi can be either deterministic variables or random variables. The variable Y is said to be the dependent variable because its value is assumed to be dependent on the value of the Xi’s. The Xi’s are referred to as the independent variables, regressor variables, or explanatory variables. Our primary focus is on the linear regression model. We will be more precise about what we mean by a “linear” regression model later in this entry. Let’s begin with a discussion of the concept of dependence.
THE CONCEPT OF DEPENDENCE
Regressions are about dependence between variables. ...