What does least squares estimates mean

Reference no: EM132139556

Question: Using the data set macro, find the least squares estimate of the following two models:

Model A: Inves = ßˆ0 +ßˆ1Interest

and

Model T:

Inves = ßˆ0 +ßˆ1Interest +ßˆ3GNP

a) What does "least squares estimates" mean? What is being estimated? What is being squared? In what sense are the squares "least"?

b) Give an interpretation of 1 ˆß in each equation.

c) Interpret the values of R2 in each equation. Is it possible for R2 to be negative?

d) Interpret the values of R 2in each equation. Is it possible for R 2to be negative?

e) Which model has estimated signs that correspond to your prior expectations? How do you explain the sign reversal on the coefficient of 1 ˆß ?

Reference no: EM132139556

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