Chapter 4
Understanding the Objectives of Regression Analysis
In This Chapter
Understanding the difference between correlation and causality
Building econometric models and making a case for causality
Working with different types of economic data
Econometric techniques help you make estimates about economic relationships. For example, you can use your knowledge of economic theory to predict that having more disposable income leads to increased consumption for normal goods, but you need econometrics to determine how much consumption rises for a given increase in income. In other words, the wisdom you acquired in your introductory and intermediate economics courses helps you form hypotheses about the direction (positive or negative signs) of various relationships, but econometrics assists you in estimating their magnitude.
The purpose of this chapter is twofold: to provide you with an overview of the most common technique used to quantify economic relationships, called regression analysis, and to explain how to organize the data you’ll use for your analysis.
In order to apply econometrics ...
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