ABSTRACT
This chapter provides the method of ordinary least squares (OLS). It examines regression involving two variables, that is price and quantity. This is referred to as simple regression. If additional variables such as income, prices of substitutes and complements, the case would be one of so-called multiple regression and the OLS estimators would be more complex expressions. Special computer programs have been devised to obtain the OLS estimators and the various other statistics. The usefulness of computers will be fully appreciated, when OLS formulae in the case of multiple regression are considered. Estimated standard deviations can of course be found by taking the square root of the estimated variances. Much of the literature in applied econometrics refers to estimated standard errors rather than estimated standard deviations. The chapter also considers hypothesis testing, confidence intervals and t-ratios and their usefulness in econometrics.
