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Reporting Results, and choosing a functional form. Hill et al chapter 6.

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Explained and Unexplained Variation Total Explained Unexplained

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Decomposing the variation link to proof

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Coefficient of determination

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Example

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Reporting Results

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Choosing a functional form Model has been assumed to be linear in the parameters. Linear in parameters: parameters are not multiplied together, raised to a power etc. variables, however, can be transformed in any convenient way, as long as the resulting model satisfies assumptions SR1- SR5 of the simple linear regression model.

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A functional form for food expenditure It is expected that food expenditure will rise at a decreasing rate with income

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Some common functional forms

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Empirical issues

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An alternative functional form

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Are the residuals normal (Jarque- Bera)

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Appendix: proof back

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