The Logic Behind the Regression Procedure
The method of least squares (MLS), or regression analysis, is also sometimes called ordinary least squares (OLS). In this method, a line, similar to Equation 1.1 in Chapter 1, is claimed to represent real-life data such as the income and consumption data in Figure 2.1. Data on personal consumption expenditures and population are available from the Bureau of Economic Analysis. Each dot on the graph represents a pair of income– consumption data for one year. The scatter plot of the data for the United States for the years 1990 to 2014 in Figure 2.1 is obtained from Stata. Income is presented on the horizontal axis and consumption is presented on the vertical axis.
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