1. Here is a fitted simple regression estimated with OLS from 866 transactions of oceanfront houses along the Oregon coast: ℎ????????? ̂ = 632577 − 130555????????? Where houseprice is the sales price ($) of the house, and floodrisk is a binary variable equal to one if the home has been classified as at risk of flooding, and equal to zero otherwise. a. Interpret the estimated coefficient on floodrisk. b. The R2 measure for this model is 0.0094. Interpret. An alternative specification of the same model uses the logged price of property as the dependent variable: log (ℎ???????? ̂ ) = 13.14 − 0.273????????? c. Interpret the estimated coefficient on floodrisk using this model with the logged dependent variable. d. Explain why the log transformation is used in econometric models.
Correlation
Correlation defines a relationship between two independent variables. It tells the degree to which variables move in relation to each other. When two sets of data are related to each other, there is a correlation between them.
Linear Correlation
A correlation is used to determine the relationships between numerical and categorical variables. In other words, it is an indicator of how things are connected to one another. The correlation analysis is the study of how variables are related.
Regression Analysis
Regression analysis is a statistical method in which it estimates the relationship between a dependent variable and one or more independent variable. In simple terms dependent variable is called as outcome variable and independent variable is called as predictors. Regression analysis is one of the methods to find the trends in data. The independent variable used in Regression analysis is named Predictor variable. It offers data of an associated dependent variable regarding a particular outcome.
1. Here is a fitted simple regression estimated with OLS from 866 transactions of oceanfront houses
along the Oregon coast:
ℎ????????? ̂ = 632577 − 130555?????????
Where houseprice is the sales price ($) of the house, and floodrisk is a binary variable equal to one if the home
has been classified as at risk of flooding, and equal to zero otherwise.
a. Interpret the estimated coefficient on floodrisk.
b. The R2 measure for this model is 0.0094. Interpret.
An alternative specification of the same model uses the logged price of property as the dependent variable:
log (ℎ???????? ̂ ) = 13.14 − 0.273?????????
c. Interpret the estimated coefficient on floodrisk using this model with the logged dependent variable.
d. Explain why the log transformation is used in econometric models.
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