Introduction to Linear Regression

These flashcards cover key concepts and terminology related to the introduction of linear regression as presented in the lecture notes.

Causality

The relationship where one variable directly affects another.

Correlation

A statistical measure that indicates the extent to which two or more variables fluctuate together.

Econometric Model

A mathematical model that quantifies economic theories and relationships between variables.

Dependent Variable

The variable that is being tested and measured in an experiment.

Independent Variable

The variable that is changed or controlled in a scientific experiment to test the effects on the dependent variable.

Regression Function

A function that models the relationship between a dependent variable and one or more independent variables.

Orthogonal Decomposition

The process of breaking down a variable into systematic and error components.

Mean-Squared Error

A measure of the average of the squares of the errors, which is the difference between the estimator and the actual value.

Strong Exogeneity

The condition that the current and future values of the dependent variable are independent of past values of the independent variable.

Homoscedasticity

A condition in which the variance of errors is constant across all levels of the independent variable.

Heteroskedasticity

A condition in which the variance of errors is not constant, often increasing with the level of the independent variable.

Simple Linear Regression

A statistical method that models the relationship between a single independent variable and a dependent variable using a straight line.

Fitted Value

The estimated value of the dependent variable based on the regression equation.

Residual

The difference between the observed value and the fitted value of the dependent variable.

Binary Variables

Variables that take only two values, often coded as 0 and 1.

Best Linear Predictor

The linear function that minimizes the mean-squared error in estimating the conditional expectation.

Specification

The process of defining a statistical model, including the choice of variables and their relationships.

Structural Economic Model

A model that is based on economic theory to explain relationships among variables.

Dummy Variable

A numeric variable used in regression analysis to represent categorical variables.

Conditional Expectation Function (CEF)

A function that gives the expected value of a dependent variable given specific values of independent variables.

Regression Error

The difference between the actual values and the values predicted by the regression model.