Econometrics 2022

Feedback Exercise Linear Regressions

Organisational
• Upload on LEA or send via email (both is fine)
• Please send Excel file
• Please save file with your name (ideally surname) in the title
Scatterplot
• Check that x-axis and y-axis are correct

TRADESHARE
2,5

2 Malta

1,5

0,5

0
-4 -2 0 2 4 6 8
„Labels“ box

Coefficients Standard Error t Stat P-value

Intercept 0,580160862 0,505087712 1,148633887 0,255119246

0,140501976 2,385630315 0,791481996 3,014130868 0,003730243

Koeffizienten Standardfehler t-Statistik P-Wert

Intercept 0,64026527 0,48997666 1,30672608 0,19605581

tradeshare 2,30643374 0,77348503 2,98187251 0,00406959

Interpretation intercept
• Most of the time: do not interpret the intercept as it makes little
economic sense.
• Here:
• Countries with tradeshare=0 => no exports, no imports
• Likely very different from other countries
• Cannot infer growth rates from other countries
• => no interpretation of intercept here!
Interpretation of slope
• „If trade share changes by 1 unit, growth will change 2.3 units”

• What are the units? Write so that external readers can also
understand your point!

• „If trade share changes by 1 unit, growth will change 2.3 percentages”
– is that correct?
Statistical significance
Standard
Coefficients Error t Stat P-value Lower 95% Upper 95%

Intercept 0,64026527 0,489976657 1,30672608 0,19605581 -0,33887494 1,61940549

Slope 2,30643374 0,773485027 2,98187251 0,00406959 0,76074725 3,85212023

• Interpretation p-value:
• p<0.05 (0.1, 0.01)=> the result is statistically significant at the 5% (10%, 1%) level
• p>0.05 (0.1, 0.01) => the result is statistically insignificant. Do not interpret
insignificant results!
• Precise: There is a 0.004 percent likelihood to observe data as ours (or more
extreme) if the Null Hypothesis of slope=0 were true.
• Confidence intervals:
• With 95% confidence the true regression parameter in the population lies between
0.76 and 3.85.
• Other levels of confidence can be chosen in the dialogue box!
Prediction
• Growth_i = 0.64 + 2.31 * Tradeshare_i + residual
insert given Tradeshare
• But what is Residual?
• The residual gives the deviance of an observed data point from the
regression line. On average, this deviance is zero! (OLS Assumption 3)
• In prediction, we do not observe any data  predict by using average
value  residual=0.
• Note: Residual ≠ Standard Error!
• The standard error quantifies the precision of our estimate (of the average
growth rate given a certain tradeshare).