Answer to Question #274169 in Macroeconomics for Maphula

Question

The estimated regression of Y on X1, X2, and X3 using a sample of 30 observations, 

gave the following results:

Yt = 2.4 + 3.9X1 + 0.65X2 – 1.46X3

(1.0)

(1.50 (0.40) (0.61)

Adjusted R2 = 0.67

Figures in parenthesis are standard errors of estimates.

a) Asses the statistical quality of the model.

Answer 1

(a)

$Yt = 2.4 + 3.9X1 + 0.65X2 – 1.46X3$

(1.0)

(1.50) (0.40) (0.61)

Adjusted R2=0.67

The coefficient of determination for the model with a constant takes values from zero to one. The closer the coefficient value to 1, the stronger the dependence. When evaluating regression models, this is interpreted as fitting the model to the data. For acceptable models, it is assumed that the coefficient of determination should be atleast 50%.

Models with coefficient of determination above 80% can be considered to be quite good.i.e. the correlation coefficient exceeds 90%. The value of coefficient of determination 1, means the functional relationship between the variables. According to the presented value of R2, the model is acceptable.