Analytical Methods in Economics and Finance

ANALYTICAL
METHODS IN
ECONOMICS AND
FINANCE
STUDENT ID:
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ANALYTICAL METHODS
Question 1
The requisite multiple regression model has been run using Excel and the data provided. The
following output has been obtained.
The regression equation is listed below.
Recexp = 28.59 + 0.10Inc(x) + 0.89chd + 175.33
The fit of the given model can be estimated by referring to R2 whose value is a dismal 0.1225.
This implies that only 12.25% of the variation in dependent variable (recexp) can be explained
with regards to variation of the independent variables (inc & chd) jointly. This implies a very
low predictive power for the model with a high majority of the variation not being explained by
the given model. Also, referring to the slopes of the two coefficients included, it is apparent that
the slope of chd variable is not significant considering that the p value is quite high at 0.57. If
the given model is compared with model in part (ii), then there is a deterioration of goodness of
fit as a non-significant variable in the form of chd has been added to the regression model.