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Chapter 4
slide 1
Average
Fare
Best-fit Line
Regression Analysis
estimates the equation that
best fits the data and measures
whether the relationship is
statistically significant.
4.2
REGRESSION ANALYSIS
More generally, Multiple Regression
allows for multiple explanatory variables:
Q = a + bP + cP + dY.
The power of Multiple Regression:
Even with multiple variables that
simultaneously influence sales,
its able to estimate the separate
variable influences (i.e. coefficients).
Important Regression Statistics
1. R2 (ranging between 0 and 1)
measures the proportion of
variation in Q explained by
the right-hand side variables.
2. F =
R2/(k - 1)
(1 - R2)/(N - k)
4.3
REGRESSION STATISTICS
For the estimated OLS equation:
Q = 28.8 - 2.12P + 1.03P + 3.09Y,
(.34)
(.47)
(1.00)
R2 = .78 (78% of Qs variation explained) and
F = 13.86 (well above 95% significance threshold).
Standard Errors and t-stats
Each coefficients standard error
(its standard deviation) measures
the uncertainty around its estimate.
The coefficients t-stat = coefficient/SE,
tests whether the coefficient is
statistically significantly different t 0.
REGRESSION ISSUES
The standard error of the regression
measures the uncertainty around the
forecast of Q. A 95% confidence interval
around the forecast is: 2 standard errors.
1. Which equation form?
Linear? Polynomial, Multiplicative?
2. Have explanatory variables been omitted?
3. Are the explanatory variables multicolinear?
4. Are the equation errors serially correlated?
4.4
4.5
4.6
FORECASTING DEMAND
Time-Series Models
indentify patterns in a
single variable over time.
A Time Series can be
decomposed into:
1. Trends
2. Business Cycles
3. Seasonal Variation, and
4. Random Fluctuations.
4.7
FORECASTING DEMAND
Barometric Models
indentify patterns among
different variables over time.
Movements in
Leading Indicators
predict future changes in
economic activity.
7. Percentage of firms
receiving Slower Deliveries
8. Growth in the Money Supply
9. Index of Consumer Confidence
10. The S&P 500 Index
11. Weekly Claims for
Unemployment Insurance