INTERPRETATION OF

RESULTS OF
REGRESSION ANALYSIS

Regression

Cont..
R2= 0.963456, which is near to 1, this shows that our

model is best fitted.

CB (Central Bank) is insignificant because the value
of t-Statistics is lies between 1.96 which is 0.34642
& P- value is greater than 0.05 which is 0.7309 , so
we accept the Ho (Null hypothesis) which is
insignificant.
NFA (Net Foreign Assets) is significant because the
value of t-Statistics is lies beyond the 1.96, which is
10.15263 & P value is less than 0.05 which is 0.0000
so we accept the H1 which is significant.

Multicollinearity
1. Simple Correlation Co-efficient
CB

NFA

CB

1.000000

0.943594

NFA

0.943594

1.000000

Table shows that the both independent variables

(Central Bank and Net Foreign Assets) are highly
correlated with each other. As rxy=0.943594 which is
nearest to 1, This shows that there is Multicolinearity
but it is Imperfect Multicolinearity.

Cont..
2. High R2 with Insignificant Co-efficient

Cont..
The value of R2= 0.963456, which shows the high

value nearest to 1, but CB (Central Bank) is

insignificant because the value of t-Statistics lies
between 1.96 which is 0.34642 & P- value is
greater than 0.05 which is 0.7309, its means
Multicolinearity is exist between the variables.

Cont..
3. Variance Inflating Factor (VIF)
VIF= 1/1-R2
VIF= 1/1-0.963456 = 27.36
The decision criteria for VIF is if the value of R2 is
high, the value of VIF is also high, A rule of thumb
is if VIF > 10 there is Multicollinearity, here R2=
0.963456 nearest to 1 and VIF=27.37 greater than
10 which means there is multicolinearity.

Cont
4. Tolerance (ToL)

ToL= 1- R2 =1/VIF
ToL= 1/27.36 = 0.036549
ToL= 1- 0.963456= 0.036544
The decision criteria for ToL is if the value of R2 is
high, the value of ToL will be lower, A rule of thumb is
if ToL < 0.10 there is Multicollinearity & Vice Versa,
here R2= 0.963456 nearest to 1 and ToL=0.03654 less
than 0.10, which means there is multicolinearity.

Heteroskedasticity
1. Graphical Method

Graph Shows unequal spread above and below the regression line, which shows that
the variance of the error term is not constant over time. So there is heteroskedasticity.

Cont..
2. Numerical Method:
ARCH Method

Cont..
F-test & P-value are the decision criteria for

heteroskadesticity. Higher the F-test value , lower will

be the P-value and result goes towards significant
level i.e p-value will be less than 0.05.
The value of F-test here is lower than 3 which is the
criteria of significant for F test, which is F=1.035158
& P-value is greater than the significant level (0.05)
which is P=0.3154. Its means that we accept the Ho
(There is no heteroskedasticity).

Cont..
White Criteria

Cont..
The value of F-test here is lower than 3, which is the

criteria of significant for F test, which is F=0.540308

& the value of P is greater than the significant level i.e
0.05, which is P= 0.7444, so we accept the null
hypothesis Ho i.e. there is no heteroskedasticity.

Autocorrelation
1. Graphical Method

Graph shows the unequal trend means there is autocorrelation.

Cont..

2. Formal Method
Durbin Watson Test

Cont..
If the value of Durbin-Watson Stats is between1.75 to

2.25, then there is no autocorrelation.

In our results the value of Durbin-Watson Stats is
1.158370, this is out of the range so we conclude that
there is autocorrelation means the disturbance term
depend on its previous value.

Cont..
Breusch Godfrey Test

Cont..
In Breusch-Godfrey Serial Correlation LM Test the

decision criteria depends on the values of P and FStats. If the value of P>0.05 then we accept the Ho,
which is there is no autocorrelation and vice versa.
The value of in result is P=0.0002, which is less then
the Significant level (0.05). so we accept the H1
hypothesis which is there is Autocorrelation.

Cont..
Resolving the Autocorrelation
AR(1)

Cont..
AR(2)

The value of Durbin Watson stat=1.8406, which is in range of 1.75 to

2.25. so now there is no autocorrelation after Second order.

Cont..
AR(3)

Dummy Variable
Intercept Dummy

Cont..
Decision is made on the basis of t-stat & p-value. If

values are in significant range there is effect of

dummy & vice versa.
Here t-stat=1.20125 between -1.96 to +1.96 and pvalue=0.2373 greater than 0.05, so the variable is not
effected by the dummy variable.

Cont..
Slope Dummy

Cont..
For cb*D1 t-stat= -2.217112 beyond -1.96 to +1.96 and p-

value=0.0366 less than 0.05, so the variable is effected by the

dummy variable
For nfa*D1 t-stat=2.93757 beyond -1.96 to +1.96 and pvalue=0.0057 less than 0.05, so the variable is effected by the
dummy variable
In both the dummy coefficient will be added to the coefficient
of respective variable.
Y = + (1+ 3) X1 + (1+ 4)X2 + t
Y =81191.32 + (0.261723 + (-0.526681) )X1 + (0.828891 +0.561483) X2
Y =81191.32 -0.264958X1 + 1.390374X2

Cont..
Combined Dummy

Cont..
For D1 t-stat= 0.163645 between -1.96 to +1.96 and p-value=0.0871

less than 0.05, so the is not effected by the dummy variable

For cb*D1 t-stat= -2.143855 beyond -1.96 to +1.96 and pvalue=0.0391 less than 0.05, so the variable is effected by the dummy
variable
For nfa*D1 t-stat=2.772699 beyond -1.96 to +1.96 and pvalue=0.0088 less than 0.05, so the variable is effected by the dummy
variable
The slope dummy coefficient will be added to the coefficient of
respective variable .
Y = + (1+ 4) X1 + (1+ 5)X2 + t
Y =73967.29+ (0.268740 + (-0.532227) )X1 + (0.833246 +0.553606) X2
Y =81191.32 - 0.263487X1 + 1.386852X2

More Than One Dummy

Intercept

For Both Dummy t-stat and p-value are insignificant, so have no effect.

Cont..
Slope

Cont..
The t-stat & p-value for the slope dummy 2(D2) is

insignificant, so the variables are not effected by D2.

cb*D1 t-stat=-2.166308 and p-value=0.0374 ,
nfa*D1 t-stat=2.654541 and p-value=0.0120 which are
significant, so effect the coefficient of variables.
The slope dummy coefficient of D1 will be added to the
coefficient of respective variable .
Y = + (1+ 3) X1 + (1+ 4)X2 + t
Y =72256.14+ (0.212060 + (-0.589406) )X1 + (0.855205 +0.612761) X2
Y =81191.32 - 0.377346X1 + 1.1.467966X2

Cont..
Combined

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