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Multiple Regression

This document outlines the key concepts in multiple linear regression analysis, including the assumptions of the classical linear regression model, the ordinary least squares estimation method, properties of regression coefficients, and interpreting the regression equation. It discusses estimating the sample regression function to minimize the sum of squared residuals and determining partial regression coefficients that measure the direct effect of each independent variable on the dependent variable. The coefficient of determination is also introduced as a measure of how much variation in the dependent variable is explained by the independent variables.

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Zecman Ngoma Isaac Jr.
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61 views11 pages

Multiple Regression

This document outlines the key concepts in multiple linear regression analysis, including the assumptions of the classical linear regression model, the ordinary least squares estimation method, properties of regression coefficients, and interpreting the regression equation. It discusses estimating the sample regression function to minimize the sum of squared residuals and determining partial regression coefficients that measure the direct effect of each independent variable on the dependent variable. The coefficient of determination is also introduced as a measure of how much variation in the dependent variable is explained by the independent variables.

Uploaded by

Zecman Ngoma Isaac Jr.
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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School Of Business, Economics

And Management
Rabecca Hatoongo-Masenke

Introduction to Econometrics
Date
Outline
Multiple Linear Regression Analysis
• Assumptions of classical linear regression model.
• Properties of least square estimators
• Interpretation of Multiple Regression Equation (Partial Coefficients)
Assumptions
• The assumptions are the same as under the two variable regression
• Students must give all 10 Assumptions.
Method of OLS
• Recall the two-variable PRF:
=
• the PRF is not directly observable. Thus we estimate the SRF

=
=+
• which shows that the (the residuals) are simply the differences
between the actual and estimated Y values
Method OLS Cont
• Now given n pairs of observations on Y and Xs, we would like to
determine the SRF in such a manner that it is as close as possible to the
actual Y. To this end, we may adopt the following criterion: Choose the
SRF in such away that the sum of the residuals
= ( − ) is as small as possible
• However summing alone does not give a true picture:

• Hence Ordinary Least Square Method (OLS) under the multiple


regression.
Some Properties
• The three-variable regression line (surface) passes through the
means
• The mean value of the estimated Y = is equal to the mean value of
the actual Y
• The sum of the residuals is zero
• Residuals are uncorrelated with the predicted X and Y
Interpretation
• Given the assumptions of the classical regression model, it follows
that, on
• taking the conditional expectation of Y, we obtain
• E(Yi | X2i, X3i) =
• In words, the equation gives the conditional mean or expected value
of Y conditional upon the given or fixed values of X2 and X3.
Therefore, as in the two-variable case, multiple regression analysis is
regression analysis conditional upon the fixed values of the
regressors, and what we obtain is the average or mean value of Y or
the mean response of Y for the given values of the regressors.
Partial Coefficients
• The regression coefficients and are known as partial regression or
partial slope coefficients. The meaning of partial regression
coefficient is as follows: measures the change in the mean value of Y,
E(Y), per unit change in , holding the value of constant.
• Put differently, it gives the “direct” or the “net” effect of a unit change
in on the mean value of Y, net of any effect that may have on mean
Y. Likewise, measures the change in the mean value of Y per unit
change in , holding the value of constant.
2
Coefficient  of  Determination 𝑅
• The notation of can be easily extended to regression models
containing more than two variables. Thus, in the three variable model
we would like to know the proportion of the variation in Y explained
by the variables X2 and X3 jointly. The quantity that gives this
information is known as the multiple coefficient of determination
and is denoted by
• TSS=ESS+RSS
• =1-
Reference
Gujarati.N.D, (2004): Basic Econometrics, 4th Edition. McGraw Hill
Education (India) Private Limited. New Delhi.

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