A regression model should estimate and forecast reality. In economics, reality is explained by economic theory. Therefore, a regression model about economic topics should be based on economic theory, and the results must be explained in terms of economics as well.
Parameters of Simple Regression
The parameters of the regression model establish the way the explanatory factors affect the response variable.
Estimating a Consumption Function
The simplest form of consumption theory in economics states that “consumption is a function of income.” This macroeconomic relationship is written as
Consumption = f (income) |
(6.1) |
This equation is read as “consumption is a function of income.” The simplest functional form ...
Get Regression for Economics, Second Edition now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
