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Lecture - Multiple - Regression - Analysis

This document discusses multiple regression analysis. It covers interpreting multiple regression models, partial effects, partialing out variables, omitted variable bias, goodness of fit, assumptions of unbiasedness, selection of variables, variance of OLS estimators, and the Gauss-Markov theorem.

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Sergio Bobka Calcina
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23 views12 pages

Lecture - Multiple - Regression - Analysis

This document discusses multiple regression analysis. It covers interpreting multiple regression models, partial effects, partialing out variables, omitted variable bias, goodness of fit, assumptions of unbiasedness, selection of variables, variance of OLS estimators, and the Gauss-Markov theorem.

Uploaded by

Sergio Bobka Calcina
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Econometrı́a I

Análisis de regresión multiple

UPB

Semestre II - 2022

Análisis de regresión multiple (UPB) Econometrı́a I Semestre II - 2022 1 / 12


Multiple regression

Multiple regression
Model with two independent variables
yi
xi1
xi2
β0
β1
β2
ui

Model with k independent variables

Análisis de regresión multiple (UPB) Econometrı́a I Semestre II - 2022 2 / 12


Multiple regression

Interpretation

ŷ = βˆ0 + βˆk xk

Variation
Partial effect, ceteris paribus
Partial-out
1 Regress x , over intercept and all other variables and obtein the
j
residual
ˆ
xˆj = γ0 + γˆ−j x−j
rˆj = xj − xˆj
2 Regress y P
on the residual with no intercept
n
rˆij yi
βˆ1 = Pi=1
n 2
i=1 rˆij

Análisis de regresión multiple (UPB) Econometrı́a I Semestre II - 2022 3 / 12


Multiple regression

Partialling out

The residual is uncorrelated with the other explanatory variables.


The residual explicitly controls for the other explanatory variables by
removing any correlation they have
The slope coefficient represents the isolated effect

Simple estimate vs Multiple estimate

yˆi = βˆ0 + βˆ1 xˆ1

yˆi = γˆ0 + γˆ1 xˆ1 + γˆ2 xˆ2

Análisis de regresión multiple (UPB) Econometrı́a I Semestre II - 2022 4 / 12


Multiple regression

Goodness-of-Fit

(yi − ȳ )2
P
Total sum of squares (SST),
Explained sum of squares (SSE), (ŷi − ȳ )2
P
P 2
Residual sum of squares (SSR), ûi
SST = SSE + SSR

R 2 can never decrease when another independent variable is added


It is not a good way to compare models

Análisis de regresión multiple (UPB) Econometrı́a I Semestre II - 2022 5 / 12


Multiple regression

Unbiasedness assumptions

Required assumptions
Linear parameters

Random sampling

No perfect collinearity

Zero conditional mean

Análisis de regresión multiple (UPB) Econometrı́a I Semestre II - 2022 6 / 12


Multiple regression

Selection of variables
Too many variables
Include not related variables
No effect on our parameters
OLS remains unbiased

Too few variables


Exclude related variables
Effects over our parameters
OLS will usually be biased

Análisis de regresión multiple (UPB) Econometrı́a I Semestre II - 2022 7 / 12


Multiple regression

Omitted variable bias


True model Ommited model

y = β0 + β1 x1 + β2 x2 + u y = β0 + β1 x1 + v

β̃1,short = β̂1,long + β̂2,long δ̂1

Análisis de regresión multiple (UPB) Econometrı́a I Semestre II - 2022 8 / 12


Multiple regression

Omitted variable bias


Bias = 0 :
β2 = 0
Corr (x1 , x2 ) = 0

Bias ̸= 0 :

Análisis de regresión multiple (UPB) Econometrı́a I Semestre II - 2022 9 / 12


Multiple regression

Variance of OLS estimators

Homoskedasticity
The error u has the same variance given any value of the explanatory
variables
Var (u|x1 , ..., xk ) = σ 2
Var (y |x1 , ..., xk ) = σ 2
Gauss-Markov assumptions (5)
Assumptions for unbiasedness
Linear parameters
Random sampling
No perfect collinearity
Zero conditional mean
Homoskedasticity assumption

Análisis de regresión multiple (UPB) Econometrı́a I Semestre II - 2022 10 / 12


Multiple regression

Variance of OLS estimator

σ2
Var (β̂j ) =
SSTj (1 − Rj2 )
Components
σ2
(xij − x̄j )2
P
SSTj =
Rj2 , regressing xj on all other x’s

Standard deviation q
ˆ (β̂j |x
se(β̂j ) = Var

Análisis de regresión multiple (UPB) Econometrı́a I Semestre II - 2022 11 / 12


Multiple regression

Efficiency of OLS: The Gauss-Markov Theorem

Under Gauss-Markov the OLS estimator β̂j for βj is the best linear
unbiased estimator
BLUE, Best Linear Unbiased Estimator
Best, having the smallest variance
Linear, can be expressed as a linear function of the data on the
dependent variable
n
X
β̃j = wij yi
i=1

Unbiased, assumptions

Análisis de regresión multiple (UPB) Econometrı́a I Semestre II - 2022 12 / 12

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