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

Explained and Unexplained Variation Total Explained Unexplained

Decomposing the variation link to proof

Coefficient of determination

Example

Reporting Results

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.

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

Some common functional forms

Empirical issues

An alternative functional form

Are the residuals normal (Jarque- Bera)

Appendix: proof back