INTRODUCTION TO REGRESSION Session 02

Created by: Sibashis

ANALYSIS AND TYPES OF DATA Chakraborty
ORIGIN

The law stated that,

although there was a
tendency for tall parents
to have tall children and
First introduced for short parents to have
by Francis Galton short children, the Later the law was Regression to
in his famous average height of confirmed by ‘Mediocrity’.
“Law of Universal children born of parents Karl Pearson.
Regression”. of a given height tended
to move or “regress”
toward the average
height in the population
as a whole.
MODERN INTERPRETATION OF REGRESSION
In very general terms Regression is
concerned with describing and evaluating
the functional or the causal relationship
among variables.
More Specifically, Regression analysis is
concerned with the study of the
dependence of one variable, the
dependent variable, on one or more other
variables, the explanatory variables, with
a view to estimating and/or predicting the
(population) mean or average value of the
former in terms of the known or fixed (in
repeated sampling) values of the latter.
SIMPLE REGRESSION VS MULTIPLE REGRESSION

If we are studying the dependence If we are studying the dependence

of a variable on only a single
explanatory variable, such as that
of consumption expenditure on real
income, such a study is known as
Simple, or two-variable, regression
analysis.
of one variable on more than one
explanatory variable, as in the
crop-yield, rainfall, temperature,
sunshine, and fertilizer examples, it
is known as Multiple regression
analysis.
REGRESSION VERSUS CAUSATION
A statistical relationship in itself cannot logically imply causation.
To understand this better let us refer to the statistical relationship
between Income and Consumption presented in our previous slide.
𝑌 = 𝛽1 + 𝛽2 𝑋 + u
A feature of the above relationship becomes apparent, that, there is
a one-way-causation between income and consumption and not the
other way around.
There is no statistical reason to assume that income does not depend
upon consumption. The fact that we treat Consumption as dependent
on Income is due to non-statistical considerations.
  “A statistical relationship, however strong and
however suggestive, can never establish causal
CONTINUED connection: our ideas of causation must come from
outside statistics, ultimately from some theory or
other.” – M.G Kendall and A. Stuart
 The primary objective of Correlation analysis concerns with
measuring the strength or degree of linear association
between two variables.

In Regression analysis, we are not primarily interested in

such a measure. Instead, we try to estimate or predict the

REGRESSION VS average value of one variable on the basis of the fixed

values of other variables.

CORRELATION In Regression analysis there is an asymmetry in the way the

dependent and explanatory variables are treated.

In Correlation analysis, however we treat the variables

symmetrically.
 In Regression analysis, the
dependent variable is assumed to
be statistical, random, or stochastic, In Correlation analysis on the other
that is, to have a probability hand, no such distinction is made
distribution. The explanatory between the dependent and
variables, on the other hand, are explanatory variables. - Symmetric
assumed to have fixed values (in
repeated sampling). - Asymmetric

NOTE ON SYMMETRIC AND ASYMMETRIC

TREATMENT OF VARIABLES.
TYPES OF DATA

Data

Time Cross- Pooled Panel

Series Section Data Data
 Time Series data also called Macro data, are those
that are collected for the same entity for different
periods of time.
TIME SERIES Simply put, a time series dataset consists of
DATA observations on one or more variables over time.
The issue of ‘data frequency’ is important in the context
of time series data. Most common data frequencies are
annual, quarterly, monthly, weekly.
 Also known as Micro-data, are those collected for
different entities in a single period of time. A cross
sectional data may consist of a sample of individuals,
CROSS-SECTION households, firms, regions, countries or any other type
of units at a specific time point.
DATA Cross sectional data are extensively used in
agricultural economics, industrial economics, labour
economics, health economics, demography, etc.
POOLED DATA In Pooled, or combined, data are elements of both
Time-series and Cross-section data.
 A special type of Pooled data, also called
Longitudinal data, are data collected for multiple
entities where each entity is observed in two or more
time points.

PANEL DATA For instance, if we collect data on some

macroeconomic variables (GDP, Money supply,
exports, etc) for some countries for two or more years,
and arrange this data in a systematic manner, then our
dataset is called a panel dataset.
In our upcoming discussions we will dive deeper into the various
assumptions and their implications pertaining to Regression
Analysis.

UPCOMING PRESENTATIONS
REFERENCES
Gujarati N Damodar, Porter C Dawn, Gunasekar Sangeetha ; Basic Econometrics
(Fifth Edition).
Bhaumik K Sankar ; Principles of Econometrics: A modern approach using Eviews (First
Edition).