Chapter 2 Simple Linear Regression

Interactions between economic (or other domains) variables in most cases cannot be easily understood and interpreted by investigating the underlying (sometimes ambiguous) economic theory. To understand the relationship between two variables, then the best way is to quantify this relationship by some statistical tools like the autocorrelation coefficient, or by using a mathematical equation (called model) as an approximation of this relationship if possible (which is not always the case). As a concrete economic example, the general equilibrium of Keynes is clearer and more accurate to be explained by the mathematical representation IS/LM of john Hicks than the explanation of Keynes itself.