This isnt for a grade, i just need to be able to explain what im looking at when

Question

This isnt for a grade, i just need to be able to explain what im looking at when it comes to these two regressions. Please advice

PART IT. Estimation and Inference. 1. How to interpret models with dependent variable and/or regressors in logarithm? (10 marks) 2. Suppose we have the following estimation results from Stata. Both salary and sales are mea- sured in thousands. (1) Write down the two models that are used in the cstimation: (2) Discuss the goodness-of-fit based on the estimation results: (3) Interpret the effecet of roe on salary: (4) Which model do you prefer? (40 marks) regress salary roe Number ot obs 209 F 1, 207)2.77 Prob > 0.0978 R-squared Adj R-squared 0.0084 Root NSE Source 35 df MS 1 5166419.04 Residual306566563 207 1867471.32 Total 391732982 208 1883331.64 0.0132 -1366.6 ealary Coef. Std. Err. t P t95% Conf. Interval roe 18.50119 11.123251.66 0.098 3.428196 40.43057 cons 963.1913 213.2403 4.52 0.000 542.7902 1303.592 regress salary roe sales Source df MS F 2, 206) 3.09 Frob F R-squared Adj R-squared= 0.0197 Roo HSE Model 11427511.82 5713755.89 Residual 380305470 206 1846143.06 0.0474 -0.0292 Total391732982 208 1883331.64 -1358.7 salary Coef. Std. Err. t IE(95 Cont. Interval] roe 19.63097 11.07655 1.77 0.078 -2.20697 41.46891 0338363 924 1272.07 sales.0163416 0088736 1.84 0.067- 830.6313 223.9049 3.71 0.000 389.1

Explanation / Answer

Here, roe is independent variable and Salary is Dependent variable

ii)Second regression out equation : Salary = b0+ b1 roe+ b2 sales

Here, roe and sales are independent variables, Salary is dependent variable

  

Salary= 963.1913 + 18.50119* roe

Regression salary, roe and sales

Salary = 830.6513 + 19.63097* roe + 0.163416* Sales

ii) To find the goodness of model:

R-squared value for two regression is low. If it is above 0.80 then we would have called it strong regression.

But comparatively, Second regression was strong compared to one.

iii) To interpret the effect of roe on salary, roe is insignificant with 0.05 significant value.

The correlation coefficient was too low.

Seems to be affecting with having co-linearity due to low r-squared value.

iv) With high r-squared, Adj R – squared and Root MSE comparatively Second model is better.

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