What is regression? Who first time used regression? What is simple regression?

What is
multiple regression?
Regression is most popular data analysis technique in econometric .First of all we will start
from the start point and that is what is regression? So the simple answer of this question is
that regression analysis technique deals with the describing and evaluating relationship
between projected variables (dependent and independent).We commonly denote dependent
variable with Y while independent variables with X1,X2 etc. Who first time used regression ?,
this term is used by Sir Francis Galton 1822-1911.He studied relationship between parents
height and children height in England and that time he examined that tall parents have tall
childrens .So come back toward our discussion ,we were talking about that dependent
variable is denoted by Y while independent variable demonstrated by X1.X2 etc., Hence if
K=1 means independent variable is only and we often called it simple regression ,on the other
hand if k>1 , means we have ,more than one X variables ,its means we have more than one
independent variables , and we call it multiple regression . The crux of above discussion is
that if we have one independent variable then we call it simple regression, while more than
one independent variable we call it multiple regression.
Example of simple regression
Let suppose we want to know what is impact of advertising on sale . we have only one
explanatory variable, hence it is called simple regression.

Y=sale
X= advertisement
And we will denote it like this
Y=f(X)
Where f(x) is function of x.

Example of Multiple regression

We will discuss multiple regression with the help of this example, let suppose we want to
know relationship between family consumption expenditure and family size, family financial
assets and family income.
Here we have
Y =family consumptions expenditure
X1 =Family size
X2 =Family financial assets
X3 =family income
In above example we can see we have more than one independent variables so we will call it
multiple regression.
Classification of variables in regression
Predictand predictors
Regressand Regressor
Explained variable Explanatory variables
Dependent variable Independent variables
Effect variable Casual variables
Endogenous variable Exogenous variables
Target variable Control variables

Specification of relationships
When we run a regression then we find two types of relationships, which are following
1. Deterministic or mathematical relationship
2. A statistical relationship
1. Deterministic relationship
 In deterministic relationship we can find exactly effect of X on Like following example will
show how to deterministic relationship work.
This is the example of deterministic relationship we will demonstrate it with the help of this
equation
Y= 2500+ 100(X)-X2
This is equation is develop by using Y dependent variable(sale) and X independent variable (advertising), here is following table of unit of y and X

X(independent variable) Y(dependent variable)

0 2500

20 4100

50 5000

100 2500

From above table we can easily calculate effect of advertising on sale

3. Statistical relationship
So first of all we will develop an equation for statistical relationship like
Y=2500+100(x)-x2+u
Where we suppose
U =+ 500 with probability of
=-500 with probability of
So here we are not sure about the exact effect of advertising on sale it may be 500 excess or
less, but in deterministic trend we have exact values. And U is called error term or
disturbance.
WHY WE USE ERROR TERM?
1. Unpredictable elements of randomness in human responsiveness
e.g dependent variable is consumption expenditure while independent variable is disposable
income of household , here household not behave like an machine , may be in one month
peoples spend spree while in other or next they spend tightfisted.
2. Effect of large number of omitted variables
Like in our example disposable income is not the only factor which effect consumption
expenditure, like family test, family size etc.so error term is catchall for the effect of all these
variables.
3. Measure error in Y.
Assumptions of a good regression
There should not be multicolinarity in our data.
Error term should not correlate with other error terms or with leg error terms (autocorrelation)
Regression line must be fitted with data strongly
Independent variables can significantly effect to dependent variable individually
And all independent variables jointly also effect dependent variable.
All the sign of coefficient must follow literature of theory.
Residual must be normal distributed
For time series analysis data must be stationary at level
What happen if we dont fulfill above assumptions? The answer is that we cant rely on
results because of these results will be spurious, for the reliable results u must fulfill above
mention assumptions