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The standard error measures the accuracy of total_unemployed's coefficient by estimating the variation of the coefficient if the same test were run on a different sample of our population. In line with our assumptions, an increase in unemployment appears to reduce housing prices. In our model, a one unit increase in total_unemployed reduces housing_price_index by 8.33. The regression coefficient (coef) represents the change in the dependent variable resulting from a one unit change in the predictor variable, all other variables being held constant. R-squared indicates that 95% of housing prices can be explained by our predictor variable, total_unemployed. For example, a stock price might be serially correlated if one day's stock price impacts the next day's stock price.Īdj. No autocorrelation (serial correlation): Autocorrelation is when a variable is correlated with itself across observations.In statistical jargon, the variance is constant. Homoskedasticity: The certainty (or uncertainty) of our dependent variable is equal across all values of a predictor variable that is, there is no pattern in the residuals.Some will be positive, others negative, but they won't be biased toward a set of values. Zero conditional mean: The average of the distances (or residuals) between the observations and the trend line is zero.Since additional predictors are supplying redundant information, removing them shouldn't drastically reduce the Adj. If the predictors are highly correlated, try removing one or more of them. No multicollinearity: Predictor variables are not collinear, i.e., they aren't highly correlated.If no linear relationship exists, linear regression isn't the correct model to explain our data. Linearity: A linear relationship exists between the dependent and predictor variables.Take extra effort to choose the right model to avoid Auto-esotericism/Rube-Goldberg’s Disease. If the assumptions don't hold, our model's conclusions lose their validity.
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OLS is built on assumptions which, if held, indicate the model may be the correct lens through which to interpret our data. OLS measures the accuracy of a linear regression model.