Introduction In econometrics, understanding the behavior of regression models and their components is crucial. Two important concepts often encountered in practical modeling are the dummy variable trap and the coefficient of determination (R²). These help in model specification and result interpretation, especially in multiple regression analysis. a) Dummy Variable Trap A dummy variable is a […]
Introduction Multicollinearity is a common problem encountered in multiple regression analysis. It occurs when two or more independent variables in a regression model are highly linearly related. This leads to complications in estimating the individual effect of each explanatory variable on the dependent variable. While multicollinearity does not violate the assumptions of the classical linear
Introduction Regression analysis is a powerful statistical technique used to determine the relationship between a dependent variable (Y) and an independent variable (X). One of the simplest forms of regression is the simple linear regression, represented as: Yi = α + βXi + ui Where: Yi: Dependent variable for observation i Xi: Independent variable for
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