Basic Regression Analysis Using EViews

Basic Regression Analysis

• EViews has a very powerful and easy-to-use estimation toolkit
that allows you to estimate from the simplest to the most
complex regression analysis.
• This tutorial explains basic regression techniques in EViews for
single equation regressions using cross-section data.
• The main topics include:
 Specifying and estimating an equation
 Equation Objects (saving, labeling, freezing, printing)
 Equation Output: Analyzing and Interpreting results

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 Estimation: the Basics

Note: Information for examples in this portion of tutorial:

 Data: Wage1.wf1
 Results: Table1.rtf
 Description of Data File
• female =1 if female, 0 otherwise
• northcen =1 if live in north central U.S. , 0 otherwise
• south =1 if live in southern region, 0 otherwise
• west =1 if live in western region, 0 otherwise
• married =1 if married , 0 otherwise
• nonwhite =1 if nonwhite , 0 otherwise The data file”Wage1”
• Wage = average hourly earnings has observations on
• lwage = log(wage) 526 individuals
• educ = years of education
• exper = years potential experience
• Tenure = years with current employer

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Equation Object: Specification and
Estimation
The Equation Object
• Single equation regression estimation in EViews is performed
using the Equation Object.
There are a number of ways to create a simple OLS Equation
Object:

3. On the command
window type: ls

2. From the Main menu,

select Quick → Estimate
1. From the Main Equation.
menu, select
Object → New
Object → 6

Equation.
The Equation Box
• In all cases, the Equation Estimation box appears.

You need to specify three things in this dialogue box:

1. The equation specification.
2. The estimation method.
3. The sample.
Specify your equation either by:
a) List
b) Formula

Specify your estimation method

Specify your sample

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Specifying an Equation by List
• The easiest way to specify a linear equation is to provide
a list of variables that you wish to use in the equation.
• Suppose that you would
like to know how well
education explains wage.
• To accomplish this, type
in the Equation
Estimation box
1. The dependent
variable (wage).
2. “c” for constant.
3. The independent
variable (educ).
Notice that all the
entries are all separated
by spaces.
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Specifying Equation by List (cont’d)

The Equation Estimation dialog box opens, listing your independent,

dependent variables, and the constant.

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Estimation Method
• After you specify the variable
list, you need to select an
estimation method.
• Click on the Method option,
and you see a drop-down menu
listing the various estimation
method you can perform in
EViews.
• Standard, single equation
regression, is performed using
“Least Squares” (LS).
• For now, we will use Least
Squares.

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Estimation Sample
• The third item you need to specify in the equation box is the Sample.
• You can specify the sample period in the sample space of the equation box.
For example, to estimate the following regression over the entire sample:
1. You need to include all observations (1 to 625).
2. Click OK to estimate the regression. As seen in Equation Output, EViews has
included all observations when estimating this regression.

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 Equation Object:
Saving, Labeling, Freezing, Printing
 Equation Objects:
Saving, Labeling, Freezing, Printing
• After you estimate an equation, you can save the output.
To accomplish this task:
1. On the Equation box, click the
button on the top menu. The Object
Name dialog box opens.
2. Type the name of the equation (in this
case eq01) and click OK.
3. The equation will appear in the workfile
window marked with the icon.

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Equation Objects:
Saving, Labeling, Freezing, Printing (cont’d)

• If you want to save the equation output so that it won’t ever change (even if you re-
estimate the regression), you can Freeze the results.
• Freezing the equation makes a copy of the current view in the form of a table
which is detached from the Equation Object.

To accomplish this
task:
1. Click the
button on the
top menu of the
Equation Box.

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 Equation Objects:
Saving, Labeling, Freezing, Printing (cont’d)

2. A table view of the equation results opens

up (shown to the right).
3. You can save this table, Object and name
the table in the Object Name box (shown
below; in this case we name it
TABLE_EQ01).

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 Equation Output:
Analyzing and Interpreting Results
Equation Output
• Let’s analyze the results from our simple estimation, which includes only one
explanatory variable (educ) and an intercept.
• The Equation box has three main parts, which we will discuss in turn:
1. The top panel summarizes the input for the regression.
2. The middle panel summarizes information about regression coefficients.
3. The bottom panel provides summary statistics about the entire regression.

Top Panel

Middle Panel

Bottom Panel
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Equation Output (cont’d)
• The top panel provides information about regression
inputs.

Element Description
Dependent Variable Denotes the dependent variables.
Method Denotes the method of estimation (least squares in this
example).
Date/Time Shows the date and time when the regression was carried
out.
Sample Shows the sample period over which the regression is carried
out.
Included Shows the number of observations included in estimation.
Observation
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Equation Output (cont’d)
• The middle panel provides information about the estimated
coefficients.

Element Description
Coefficient Values • EDUC coefficient measures the marginal contribution of educ to
wage.
• C is the estimated constant (or intercept) of the regression.
Standard Errors • Reports the standard errors of the coefficient estimates.
• The larger the standard errors, the more noisy the estimates.
t-Statistic • Reports the t-statistics, computed by dividing coefficient estimates
by their standard errors.
• Is used to test whether the coefficient in that row equals zero.
Prob. (p-value) • Reports probability of drawing a t-statistic as extreme as the one
actually estimated.
• Is used to test whether the coefficient is equal to zero (against a
two-sided alternative). 19
 Equation Output (cont’d)

Statistic Description
R-squared Measures the success of the regression in predicting the
values of depended variable.
Adjusted R-squared Adjusts for the number of independent regressors by
penalizing R-squared for additional regressors.
• The bottom panel provides
S.E. of regression Is a summary measure based on estimated variance of the
information regarding the residuals.
summary statistics for the Sum squared resid Reports the sum of squared residuals. The same as (S.E. of
entire regression. regression)2 * (T-k-1), where T is the number of observations
(526 here), k is the number of independent variables (k=1
here).
Log-likelihood Reports the log likelihood function evaluated at coefficient
estimates assuming normally distributed errors.
F-statistic Tests whether all slope coefficients (excluding the constant)
are zero.
Prob(F-Static) Reports the probability of drawing an F-statistics as the one
estimated. 20
 Equation Output (cont’d)

Statistic Description
Mean dependent var Shows the mean of the dependent variable (in this case, wage).
S.D. dependent var Shows the standard deviation of the dependent variable (i.e,
wage).
Akaike info criterion Used in model selection; smaller values are preferred.
Value increases with
Schwarz criterion An alternative to Akaike information (AIC) used also for model addition of extra
selection. Imposes a larger penalty for including additional explanatory variable
explanatory variables
Hannan-Quinn criter. An alternative to AIC and Schwarz criteria used for model selection.
It employs a slightly different penalty function than the other two.
Durbin-Watson stat Measures serial correlation in the residuals. As a rule of thumb, a
DW statistic less than 2 is an indication of positive serial
correlation.
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