How Is Linear Regression Used in Econometrics Assignment? Pros & Cons

Econometrics is using statistical methods, and mathematical functions on economic data gathered from research and surveys. It is a technique by which one draws connections between economic health and measures applied for it. It gives an analysis of the current economic situation and its relation with factors affecting people’s lives.

Linear regression is one of the most common techniques that professors usually ask students to use in the assignment. If you don’t know how to use it, go through this write-up where the Econometrics assignment help experts of Instant Assignment Help have explained it in detail.

What Is Linear Regression?

It is a model by which one can draw a comparison between two or more variables. One of these variables must be known and is called the dependent variable. Other independent variables are guided by mathematical functions that are written by studying the relation between them. In Econometrics, the terms can be GDP v/s unemployment, GDP v/s poverty, GDP v/s household savings, etc. Using this model, one draws graphs based on the researched data, represents the inference, and plans measures to improve it.

When there is more than one independent variable, it is called multiple linear regression. It can predict a situation using observed data. It was the first model that was developed to study the economy using statistics.


The basic equation of linear regression looks like, X=A+A’*Y+ɛ, where X is to be calculated based on a base known value(A), a relation function(A’), Y is a dependent variable like GDP and ɛ is an error value. This equation gives how A will increase or decrease if Y changes.


Pros


This method is very simple.

This method can be applied universally on different relations.

The fit of the graph gets more accurate, with more samples.

It can be easily plotted between the two axes.

Cons


If not deduced properly, relationships can give wrong results, and real-life problems are not easily defined.

The sample size has to be large to converge accurately.

It can only represent graphical relations that are linear.

It can not explain exceptional situations where there is a sudden change in the plot.

Economists and statisticians have devised other more complex methods to make sense of economic data. This data is collected every year and is very vast. Many models are used in econometrics for data analysis that explains the impact of one policy change on the whole economy.

Complex models are hard to understand but are needed as one goes into the depth subject. Experts working with Instant Assignment Help have discussed such models in simple terms in the samples available on our website for free. You can take their assistance if you are facing issues in writing your assignment. They will help you with all their might! 

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