Business Forecasting

Individual Assignment
“Regression Model of Consumption
Function”

Submitted to Prof. Dhyani Mehta

Anjali Somani
Submitted by 177206
IMBA- SEM VII
Submission Date October 8, 2020
 The Results from the Regression Model run on EViews
(LS-Least Squares (NLS & ARMA)

Dependent Variable: C01

Method: Least Squares
Date: 10/08/20 Time: 20:56
Sample: 1 53
Included observations: 53
Variable Coefficient Std. Error t-Statistic Prob.
Y 0.134169 0.006549 20.48752 0.0000
C 5988.349 210.2941 28.47607 0.0000
R-squared 0.891660 Mean dependent var 9484.494
Adjusted R-squared 0.889535 S.D. dependent var 2691.895
S.E. of regression 894.6843 Akaike info criterion 16.46782
Sum squared resid 40823461 Schwarz criterion 16.54217
Log likelihood -434.3973 Hannan-Quinn criter. 16.49642
F-statistic 419.7386 Durbin-Watson stat 0.471987
Prob(F-statistic) 0.000000

Interpretation
As also mentioned right at the beginning, it is C01, i.e.,
Dependent Variable
consumption.
Indicates the estimation technique used. As is evident, it is
Method
Regression based on Least Squares method.
Date and Time Indicates the date and time at the time of carrying out the analysis.
Sample, & Included Indicate the scope of the study; 53 observations have been
Observations considered into the computation.
Variable Both Slope and Intercept.
The estimated value indicates the direction of the relationship
between the two variables- positive estimate indicates positive
relationship and negative estimate indicates negative relationship.
Coefficient

Here we can see the values of the coefficients is positive,

indicating that a positive relationship exists between the two.
 Indicates the extent of error in the predicted value; the distance
between the values/ observations and the mean of the values.

We can that the standard error in prediction of Y (Income) is very

Std. Error
less, and that in computation of C (consumption) is coming out to
be 210.2941, implying that the value of C will vary by +/-
210.2941 about the mean of the sample data, which is 9484.494 as
depicted by Mean dependent Variance.
T distribution is a measure of the flatness of the distribution. Th t-
Statistic/ t-value is a type of inferential statistic that measures the
size of the difference relative to the variance of the sample data. It
t-Statistic is used to determine the relevance of the null hypothesis; greater
value indicates greater evidence of false-ness of the null
hypothesis. This rejection decision depends on the confidence
level required by the researcher.
Prob. or the p-value looks up the t-stat table using the degree of
freedom (=included observations-1) to identify the confidence
level you have of having a non-negative slope.
Prob.

In the data above we can see that the p-value obtained is 0,

implying 100% confidence that the slope will be a non-zero value.
Indicates the extent of the variation in the dependent variable
caused by the independent/ explanatory variable.
R-squared
The value for this data is 0.891660, implying a very strong
correlation between the two variables.
It adjusts to the number of explanatory variables added to the
model, and is used to compare the goodness-of-fit of the model. Its
value increases only when the new explanatory variable added
improves the fit of the model.
Adjusted R-squared
This value for the given data came out to be 0.889535 as
mentioned in the table above, implying that the goodness-of-fit of
the model can still be improved by adding relevant explanatory
variables.
 It is the summary measure based on the estimated variance of the
S.E. of Regression
residuals.
Sum squared Implies the sum of squared residuals for the explained and
residuals unexplained variation in the dependent variable (here C).
Tells whether the explanatory variable is significant in explaining
F- statistic the dependent/ outcome variable. The higher the value of F-stat,
the better it is for the model.
The probability value of 0.0000 is a probability value that
Prob (F-statistic) indicates the statistical significance of the F statistic; preferable is
less than 0.05
Average (mean) value of the dependent variable (here it indicates
Mean dependent var
mean value of C).

S.D. dependent var. Indicates the deviation from average (men) value.

Akaike/ Schwartz/
Used to make choice between competing models. The lower the
Hannan-Quinn info
value of these criteria, the better the model is.
criterion
Rule of thumb: if DW < 2 it implies evidence of positive serial
correlation. Serial correlation occurs in time series and it is used to
describe the relationship between observations of the same
Durbin-Watson stat variable over specific periods of time.

We can see that the DW stat for the above model is less than 2,
implying a positive serial correlation.