Professional Documents
Culture Documents
Global Economy
Chapter 4
Demand Estimation
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 1
The Identification Problem
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 2
Demand Estimation:
Marketing Research Approaches
• Consumer Surveys
• Observational Research
• Consumer Clinics
• Market Experiments
• Virtual Shopping
• Virtual Management
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 3
Regression Analysis
Year X Y
1 10 44
Scatter Diagram
2 9 40
3 11 42
4 12 46
5 11 48
6 12 52
7 13 54
8 13 58
9 14 56
10 15 60
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 4
Regression Analysis
• Regression Line: Line of Best Fit
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 5
Regression Analysis
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 6
Ordinary Least Squares (OLS)
Model: Yt a bX t et
ˆ
Yˆt aˆ bX t
et Yt Yˆt
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7
Ordinary Least Squares (OLS)
n n n
t t t t
e 2
t 1
(Y ˆ
Y ) 2
(Y ˆ
a
t 1
ˆ )2
bX t
t 1
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 8
Ordinary Least Squares (OLS)
Estimation Procedure
n
(X t X )(Yt Y )
bˆ t 1 ˆ
â Y bX
n
t
( X
t 1
X ) 2
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 9
Ordinary Least Squares (OLS)
Estimation Example
Time Xt Yt Xt X Yt Y ( X t X )(Yt Y ) ( X t X )2
1 10 44 -2 -6 12 4
2 9 40 -3 -10 30 9
3 11 42 -1 -8 8 1
4 12 46 0 -4 0 0
5 11 48 -1 -2 2 1
6 12 52 0 2 0 0
7 13 54 1 4 4 1
8 13 58 1 8 8 1
9 14 56 2 6 12 4
10 15 60 3 10 30 9
120 500 106 30
n n n
106
n 10 X t 120
t 1
Yt 500
t 1
(X
t 1
t X ) 2 30 bˆ
30
3.533
n n n
X t 120 Yt 500
X 12 Y 50 (X t X )(Yt Y ) 106 aˆ 50 (3.533)(12) 7.60
t 1 n 10 t 1 n 10 t 1
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10
Ordinary Least Squares (OLS)
Estimation Example
n
X t 120
n 10 X 12
t 1 n 10
n
n n Yt 500
X 120 Y 500 Y 50
t 1 n 10
t t
t 1 t 1
n
106
(X
t 1
t X ) 302 ˆ
b
30
3.533
(X
t 1
t X )(Yt Y ) 106 aˆ 50 (3.533)(12) 7.60
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 11
Tests of Significance
sbˆ
(Yt Y )
ˆ 2
e 2
t
(n k ) ( X t X ) 2
(n k ) ( X t X ) 2
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 12
Tests of Significance
Example Calculation
Time Xt Yt Yˆt et Yt Yˆt et2 (Yt Yˆt ) 2 ( X t X )2
1 10 44 42.90 1.10 1.2100 4
2 9 40 39.37 0.63 0.3969 9
3 11 42 46.43 -4.43 19.6249 1
4 12 46 49.96 -3.96 15.6816 0
5 11 48 46.43 1.57 2.4649 1
6 12 52 49.96 2.04 4.1616 0
7 13 54 53.49 0.51 0.2601 1
8 13 58 53.49 4.51 20.3401 1
9 14 56 57.02 -1.02 1.0404 4
10 15 60 60.55 -0.55 0.3025 9
65.4830 30
n n n (Y Yˆ ) 2
65.4830
e (Yt Yˆt )2 65.4830 (X sbˆ 0.52
t
2
X ) 30
2
t 1
t
t 1 t 1
t ( n k ) ( X X )
t
2
(10 2)(30)
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 13
Tests of Significance
Example Calculation
n n
t t t 65.4830
e 2
t 1
(Y Yˆ ) 2
t 1
n
t
( X
t 1
X ) 2
30
sbˆ
(Yt Y )
ˆ
65.4830
2
0.52
(n k ) ( X t X ) 2
(10 2)(30)
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 14
Tests of Significance
Calculation of the t Statistic
bˆ 3.53
t 6.79
sbˆ 0.52
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 15
Tests of Significance
Decomposition of Sum of Squares
(Yt Y ) (Y Y ) (Yt Yt )
ˆ 2 ˆ
2 2
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 16
Tests of Significance
Decomposition of Sum of Squares
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 17
Tests of Significance
Coefficient of Determination
R2
Explained Variation
(Yˆ Y ) 2
TotalVariation t
(Y Y ) 2
373.84
R 2
0.85
440.00
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 18
Tests of Significance
Coefficient of Correlation
1 r 1
r 0.85 0.92
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 19
Multiple Regression Analysis
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 20
Multiple Regression Analysis
(n 1)
R 2 1 (1 R 2 )
(n k )
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 21
Multiple Regression Analysis
R 2 /(k 1)
F
(1 R 2 ) /(n k )
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 22
Problems in Regression Analysis
• Multicollinearity: Two or more
explanatory variables are highly
correlated.
• Heteroskedasticity: Variance of error
term is not independent of the Y
variable.
• Autocorrelation: Consecutive error
terms are correlated.
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 23
Durbin-Watson Statistic
Test for Autocorrelation
n
t t 1
( e e ) 2
d t 2
n
t
e 2
t 1
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 24
Steps in Demand Estimation
• Model Specification: Identify Variables
• Collect Data
• Specify Functional Form
• Estimate Function
• Test the Results
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 25
Functional Form Specifications
Linear Function:
QX a0 a1 PX a2 I a3 N a4 PY e
QX a( PXb1 )( PYb2 ) ln QX ln a b1 ln PX b2 ln PY
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 26