ECON 2P91 Lecture Notes - Lecture 8: Simple Linear Regression, Econometric Model, Dependent And Independent Variables

• School: Brock University
• Department: Economics
• Course: ECON 2P91
• Professor: Tomson Ogwang

Document Summary

Specification of an econometric model requires knowledge of economic theory or invoking commonsense. The meaning of this specification: x (the variable on the right) causes y (the variable on the left) based on theory or commonsense, the affected variable (y) always appears on the left-hand-side of the regression model. The affected variable is called the dependent variable or the regressand: the variable(s) that affect the dependent variable (x in this example) always appear on the right-hand-side. The affecting variable(s) are called the independent variable(s) or regressor(s). The model in this example is a simple linear regression model because it contains only one regressor. If a model contains more than one regressor it is called a multiple regression model. Specifying a multiple regression avoids leaving out important variables from the regression. However, there are more econometric problems to worry about when one specifies a multiple regression model. In other words you always specify a regression of the regressand on the regressor(s).