Permanent Income Hypothesis Explained: Friedman’s Theory of Consumption Introduction Imagine two friends. One gets a surprise USD 5,000 bonus at work. The other gets a USD 5,000 permanent raise added
Functional Forms of Regression Models The Semi-Log Model in Econometrics In the previous article, we examined the Double-Log Model, where both the dependent and independent variables are expressed in logarithmic
Various Functional Forms of Regression Models Double-Log Model Explained with Examples Introduction Regression analysis is one of the most powerful tools in econometrics, but a model is only as good
Relative Income Hypothesis How Social Comparison Shapes Consumption Why do two families earning the exact same income spend such different amounts on consumption? Why does a household that loses part
Saving Function Definition The saving function shows the functional relationship between saving and disposable income. It tells us how much a household wants to save at a given income level.
Consumption Function Definition The consumption function shows the functional relationship between consumption expenditure (C) and disposable income levels (Y). It tells us how much households want to spend on consumption
In macroeconomic analysis, consumption is one of the most important components of aggregate demand and plays a fundamental role. Economists have developed a number of ideas that explain how individuals
What is Portfolio? Portfolio is a collection of financial assets owned by an individual or institution, such as stocks, bonds, cash, mutual funds, real estate, commodities, and other investments. Diversification
What is Sensitivity Analysis? Sensitivity analysis is a financial modelling technique used to determine how key input variables affect the outcome of a model or decision under certain assumptions. It
Origins of Development Economics Post World War II Destruction Modern development economics emerged from countries devastated by WWII — there was an urgent need for theories and policies to rebuild
One of the assumptions of the Classical Linear Regression Model (CLRM) is that the explanatory variable X has no perfectly linear relationship. In other words, there should be no perfect
Core Values of Development Sustenance: Sustenance is the ability to meet life-sustaining basic needs like food, clothing, shelter, health, and protection. It is the minimum level required for a good
In the previous article, Assumptions of Classical Linear Regression Model (CLRM), we discussed the assumptions of CLRM. In this article, we discuss the variance and standard error of OLS estimators
In the previous post, we discussed how to estimate a sample regression model, i.e., and . by applying the OLS method on sample data, both in simple and multiple linear
Introduction of Regression Through Origin Models So far we have studied models like Where intercept is present. An economic example of these models is the Keynes consumption function written as:
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