Describe the recommended approach towards determining model specification.How does the R2 help in determining an appropriate model? Is theideal model the one with the highest R2? Should a regressor be included in the model if it increases the model R2?
Describe the recommended approach towards determining model specification.How does the R2 help in determining an appropriate model? Is theideal model the one with the highest R2? Should a regressor be included in the model if it increases the model R2?
According to guidelines, the first three sub parts needs to be answered.
Regression analysis is an important topic in the ambit of statistics and econometrics. It was founded by famous statistitian Dalton. R squared forms the basis of an ideal model in statistics.
R squared is defined as
=1−Unexplained Variation/Total Variation.
Regression is used for forecasting purposes.
Adjusted R-squared rises is a new variable raises the bar for the model by high probability. Inferior variables reduces the model's performance. Reducing the model is the system of eliminating the insignificant variables by seeing the p values and removing the ones with low p values until the model consists of the significant terms only. Stepwise regression is another method that uses mathematical codes to select the variables to build the required regression equation. This process can deliver the Mallows’ Cp statistic, which determines the fine balance between precision and bias.
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