Explain steps in interpreting OLS estimated result of thr regression analysis

Answer 1

The steps for interpreting the OLS (Ordinary Least Squares) estimated results in a regression analysis are as follows:

1. Understand the model: Firstly, familiarize yourself with the model equation and the variables included in the analysis. Ensure that you have a clear understanding of the dependent variable (the variable being predicted) and the independent variables (the predictors).

2. Examine the intercept: The intercept term (often denoted as β₀) represents the value of the dependent variable when all independent variables are set to zero. It is important to evaluate whether this intercept has any meaningful interpretation in your context.

3. Interpret the coefficient estimators: Each independent variable in the model equation is assigned a coefficient estimator (often denoted as β₁, β₂, etc., corresponding to the first, second, etc. variables). These coefficient estimators represent the change in the dependent variable for a one-unit change in the associated independent variable, holding all other variables constant. It is vital to consider the direction (positive or negative) and magnitude of these coefficients.

4. Assess the statistical significance: Statistical significance indicates whether the estimated coefficient is significantly different from zero. The p-value associated with each coefficient provides this information. Generally, if the p-value is less than a chosen level of significance (often 0.05), then the coefficient is considered statistically significant.

5. Evaluate coefficients in relation to theory or prior knowledge: Consider whether the estimated coefficients align with your expectations based on existing theory or prior knowledge. For example, if you are examining the effect of education on income, a positive coefficient on education would be expected in most cases.

6. Check the magnitude of the coefficients: Consider the size of the coefficients in relation to the variability of the dependent variable. If the coefficients are small relative to the range of the dependent variable, the practical significance of the relationship may be limited.

7. Analyze the goodness of fit: Evaluate the overall fit of the model using metrics such as R-squared or adjusted R-squared. These metrics indicate the proportion of variance in the dependent variable that is explained by the independent variables. Higher values indicate a better fit.

8. Assess other aspects of the model: Analyze other aspects of the model, such as the residuals, to ensure that the model assumptions (e.g., linearity, homoscedasticity, independence of errors) are met. If assumptions are violated, consider alternative modeling approaches or further investigation.

9. Interpret the results in the context of the research question: Finally, interpret and discuss the results in the context of your specific research question or hypothesis. Consider the practical implications and limitations of the findings, and discuss how they contribute to the existing body of knowledge.

Overall, interpreting OLS estimated results involves considering the coefficients, their statistical significance, magnitude, theoretical expectations, goodness of fit, and contextual relevance. It is essential to examine the results critically and interpret them in a meaningful and valid manner.