Session-Multiple Regression
Session-Multiple Regression
and Correlation
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Example - Airfares 2002Q4
Scatterplot Matrix of Average Fare, Distance, and Average
Passengers (produced by STATA):
0 1000 2000 3000
400
avefare 200
0
3000
2000
distance
1000
0
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avepass 5000
0
0 200 400 0 5000 10000
Example - Airfares 2002Q4
Partial Regression Plots: Showing whether a new predictor is
associated with Y, after removing effects of other predictor(s):
Partial Regression Plot Partial Regression Plot
200
100
100
0
0
AVEFARE
-100
-100
-200
-2000 0 2000 4000 6000 8000 10000
-2000 -1000 0 1000 2000
AVEPASS
DISTANCE
ANOVA
table
Example - Airfares 2002Q4
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Multicollinearity
• Many social research studies have large numbers
of predictor variables
• Problems arise when the various predictors are
highly related among themselves (collinear)
– Estimated regression coefficients can change
dramatically, depending on whether or not other
predictor(s) are included in model.
– Standard errors of regression coefficients can
increase, causing non-significant t-tests and wide
confidence intervals
– Variables are explaining the same variation in Y
Testing for the Overall Model - F-test
bi
T .S . : tobs = ^
sb i
R −r
2 2
= 0 rYX2 2 • X 1 1
2 YX 1
rYX 2 • X 1
1− r 2
YX 1
Observations 75 75 75
Illustration Using EVIEWS
• Correlation results
Covariance Analysis: Ordinary
Date: 02/17/19 Time: 20:18
Sample: 1 75
Included observations: 75
Correlation
t-Statistic
Probability ADVERT PRICE SALES
ADVERT 1.000000
-----
-----
Scaled Coefficients
Date: 02/17/19 Time: 20:16
Sample: 1 75
Included observations: 75
Standardized Elasticity
Variable Coefficient Coefficient at Means
C 118.9136 NA 1.536855
PRICE -7.907854 -0.631835 -0.581244
ADVERT 1.862584 0.238739 0.044389
Assignment
• In this case we want to examine the effect
of government expenditure on infrastructure
(GEI, in IDR Billion), the inflation rate
(INF, in percent), and the labor force (TK,
in million people) on national GDP (GDP,
in IDR Billion).
• A multiple linear regression model will be
used which is expressed as follows: