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Essay on Regression Model - Economics
I do agree that Regression Model is better because when we are at the exploratory stage of some research, we quite often collect data on a large number of independent variables, in the hope of finding out which of them will best predict a dependent variable. The obvious solution is to put them all into a regression. However, the result may be quite disappointing: we may get a low R2 value, and a lot of the regressors may have small, nonsignificant coefficients. It's quite possible that a regression using some subset of the regressors would have been better in R2 terms. In that case it would also, obviously, be a more efficient, compact, description of the data.
For example take any two series with strong upward trends, say, U.S. retail sales of automobiles (in nominal dollars) and the population of Pakistan.
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