Dimitrie Cantemir Christian University

Knowledge Horizons - Economics

Volume 5, No. 4, pp. 168172
P-ISSN: 2069-0932, E-ISSN: 2066-1061
2013 Pro Universitaria
www.orizonturi.ucdc.ro

The Use of Simple Regression in Macroeconomic Analysis

Constantin ANGHELACHE1, Ligia PRODAN2
1Artifex

University/Academy of Economic Studies, Bucharest

of Finance, Banking and Accountancy, Dimitrie Cantemir Christian University/Academy of Economic Studies,
Email: prodanligia@yahoo.com
2Faculty

Abstract

This article shows the evolution of the main macroeconomic indicators of results, Gross Domestic
Product correlated with variation of final consumption in our country in the years 1990 to 2011. The
values of the two macroeconomic indicators have been deflated using the consumer price index with
fixed basis, considering the first year of the series, 1990, as a reference. The evolution of the Gross
Domestic Product is influenced to a large extent by changes of final consumption. To achieve the
correlation between the two macroeconomic indicators, article proposes using the linear regression
model, model is the basis of many micro and macroeconomic analysis. In this regression model is
considered the gross domestic product as outcome variables and the final consumption as the variable
factorial.

1. Introduction
The linear regression model involves identifying the
variables for defining the model and establishing the
residual variable. For the analysis of time series we are
using a time function which, in essence, it is all of the
regression line with a time variable (t). The purpose of
the use of the regression model is that to obtain the
parameters corresponding to a set of variables made by
analyzing the dependence of the variables for the data
series that are recorded at the level of the statistical
units of population for a time period or a moment, and
for highlighting the dependence between variables in a
certain period of time [1].

2. The Use of Simple

Macroeconomic Analysis

Regression

in

In theoretical analysis the dependence between

variables is stochastic. It is necessary to consider the
residual variable in a model like this. The other factors
that are influencing the variable output are grouped in
residual variable.
The form of the model of simple linear regression is:
Y = 0 + 1 X1 +

(1)

The variables of the model, for the featured example,

are:

Key words:
Gross Domestic
Product, final
consumption, simple
regression, model,
correlation, variable
JEL Codes:
C22, O11

Y = the dependent (outcome) variable: The Gross

Domestic Product (mil. lei in comparable prices);
X1 = the independent (factorial, predictive) variable: The
Finial Consumption (mil. lei in comparable prices);
= error, random (residual) variable; the variable that
adds the influence of other variables on the Gross
Domestic Product but are not express specified in the
model. The variable expresses the deviations
between the empirical values and the model estimated
values.
The parameters of the simple linear regression model,
also known as regression coefficients, are:
0 = the intercept- shows the average value of the Y
value when X=0;
1 = the slope - shows the average variation of the
dependent variable Y, at a absolute variation with one
unit of X variable, which means the variation of the Y
variable is proportional with the variation of the X
dx
variable: 1 =
(2)
dy
When establishing the regression equation witch best
approximates the real shape of the researched
dependence a series of statistical procedures are used.
The easiest way to determine the regression equation
is the graphical representation of the correlated
statistical distributions (correlogram) which sometimes
suggests the forming of a link.

Knowledge Horizons - Economics

Volume 5, No. 4, pp. 168172, 2013 Pro Universitaria

Table 1. The evolution of the Gross Domestic Product

and Final Consumption of Romania in the period 1990 2011 (mil. lei in comparable prices)

The term Regression was first used by Francis Galton

(1822-1911) in a paper from 1886 witch studied the
connection between the height of fathers and the height
of sons. He noticed that from parents taller than the
group average height the children are born smaller than
their parents and from parents with height less than of
the group average the children are born with height
greater than parents. So there is a regression (return)
towards the average value. Generally, is about the
modulation of the dependence relation of a variable of
one or more independent variable, analogue to the
case of the dependence of a phenomenon of one or
more factors.
The term correlation is used to define the
interdependence (connection) between the observed
variables in statistical population. The term is synonym
with statistical regularity or statistical connection. The
root of the word correlation comes from Latin
(corelatio = in relation to) and was used in biology by
Charles Darwin meaning collective variable. In
statistical study was used by Galton meaning mutual
relations between certain characteristics.
In the analysis made about the factors that determine
the variation of the Gross Domestic Product, we began
from the specific components of the final production use
method (the expenditure method), considering is a
source of meaningful information on the main
correlations that influences the es
So, according to the calculation method mentioned
before, the Gross Domestic Product means the
summing of the components that express the use of
goods and services which makes the final production
as:
GDP = FC + GCF + NEX

Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011

Gross Domestic
Product
(comparable
prices) million lei
85.79
81.57
71.88
67.08
70.38
77.12
83.82
76.47
71.03
71.13
71.92
77.70
82.55
93.00
104.15
111.60
124.92
143.82
165.00
152.15
149.86
150.59

Final Consumption
(comparable prices)
million lei
67.95
61.89
55.35
51.01
54.37
62.72
69.28
66.09
64.13
63.13
61.96
66.19
69.03
79.52
88.86
96.96
106.87
119.25
134.93
122.74
120.13
118.07

Source: Statistical Yearbook of Romania, Gross Domestic

Product, categories of uses, NIS, Bucharest, 1991-2012

The values of the two macro economical indicators

were deflated using the consumer price index (used by
the National Statistical Institute to calculate the inflation
rate in Romania) witch catches the evolution of the
prices of final goods and services purchased by the
population (food supplies, non-food and services). The
fixed base consumer price index was used considering
the first year of the series, year 1990, as reference
base.
For the making of the analysis regarding the correlation
between the two macro economical indicators
presented in the table above is necessary to identify the
specific features aiming the evolution of item
considered in the specified time interval. For this, with
the help of Eviews 7.2 software we studied in the first
step the individual development of the two indicators.
So, the analysis of the evolution of the Gross Domestic
Product of Romania from 1990 to 2011 allowed
obtaining the following information and graphic material:

(3)

Where: FC = Final consumption;

GCF = Gross capital formation;
NEX = Net export.
To build a linear regression model we defined the final
consumption as independent variable while the value of
the Gross Domestic Product was considered a
dependent variable.
Starting from the elements mentioned above we wanted
to identify the country wide relation between the
evolution of the final consumption (regarded as a sum
of the private and public consumption) and the variation
of the Gross Domestic Product. For this we used the
simple linear regression as method of analysis. The two
indicators can be shown in synthetic form as follow:

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Volume 5, No. 4, pp. 168172, 2013 Pro Universitaria

flattening or sharpening of a distribution. Kurtosis test

value being less than 3 mean that we have a platikurtic
distribution, flatter than normal distribution with values
scattered over a wider range around the average. The
probability for extreme values is lower than that of a
normal distribution.
The Jarque-Bera test takes into account both the
asymmetry and the flattening coefficients and examine
whether the empirical distribution can be approximate
with a normal distribution. The critical value of JarqueBera test for statistical significance level of 5% is 5.99.
Since the calculated value of Jarque-Bera test is less
than the critical value we could say that we have
approximately the normal distribution of this indicator.
A similar analysis can be performed for the final
consumption trends during 1990-2011. The main
information obtained from the analysis performed using
the software Eviews 7.2 can be presented as follows:

Figure 1. The evolution of the Gross Domestic Product

of Romania in the period 1990-2011 (mil. lei in
comparable prices)
As can be seen both from the development of the
researched data series and the graphic, in the period
considered the Gross Domestic Product registered
small fluctuations with small increase and decrease, but
overall there is an increase from one year to another.
With the help of the software Eviews 7.2 we conducted
a series of statistical tests designed to insure an
accurate picture of the evolution of our country's Gross
Domestic Product in the period under review.

Figure 3. The evolution of the Final Consumption of

Romania in the period 1990-2011 (mil. lei in
comparable prices)
The graphical representation of final consumption
allows us to conclude that the final consumption
indicator showed small fluctuations, with small
increases and decreases, but overall there is an
increase from one year to another. Similarities like
those observed for the development Gross Domestic
Product is also found in the evolution of final
consumption.

Figure 2. Statistical tests performed on Gross Domestic

Product
Thus, it is noted that the average value of this indicator
for the period 1990 - 2011 is 99.25 million lei, with a
range between a minimum of 67.08 million lei recorded
in 1993 and a peak of 165 million lei in 2008.
Skewness test is used to analyze distribution of the
series of data to indicate the deviation of the empirical
distribution in report to a symmetrical distribution
around the average. Thus, we can say that the
distribution of values of Gross Domestic Product for the
period considered is not perfectly symmetrical. Since
Skewness test value is greater than 0 we can say that
the distribution is tilted to the left, with more extreme
values to the right.
Kurtosis-test is an indicator used in the analysis of the
distribution of data series to indicate the degree of

Figure 4. Statistical tests performed on Final

Consumption
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Volume 5, No. 4, pp. 168172, 2013 Pro Universitaria

have undergone research on the data series that

includes the values of the two indicators in the period
1990-2011. They were processed using the software
package Eviews 7.2. The estimation method defined in
this program is the method of least squares.
The results obtained using Eviews software is as
follows:

With the help of Eviews software we determined the

variation range of final consumption is between 51.01
million lei (minimum value-recorded in 1993) and
134.93 (maximum value-recorded in 2008). Also, we
obtained the average value of the indicator, 81.83
million lei.
As can be seen, values of Skewness and Kurtosis tests
allow us to state that deemed distribution is not
perfectly symmetrical:
- Skewness test value being greater than 0 we can say
that the distribution is tilted to the left, with more
extreme values to the right;
- Kurtosis test value being lower than 3 we can
establish we have a platikurtic distribution, flatter than a
normal distribution with values scattered over a wider
range around the average.
Jarque-Bera test value is less than the critical value of
5.99 for a statistical significance of 5%, which means
that we have an approximately normal distribution of
this indicator.
From the analysis it can be concluded that the evolution
of the two indicators is similar, with steady growth in the
analyzed period. Also, it is noted that the values of the
tests performed on the two sets of statistical data is
very similar. Based on these results, we can say that
the Gross Domestic Product and the final consumption
are highly interdependent.
To confirm this statement we realized the chart point
cloud of the pairs that consist of the Gross Domestic
Product values and the corresponding final
consumption values. This graphical representation is as
follows:

Figure 6. The regression models characteristics

To interpret the results obtained using linear regression
model is necessary to determine if this model can be
considered correct, and the results that it offers can be
used in real macroeconomic analysis:
R-squared coefficient of determination, which shows
the validity of the chosen model to explain the variation
of y, in this example has a value close to 1, indicating
that the model is well chosen, final consumption, X,
explains the variation of the Gross Domestic Product,
Y, in a ratio of 98.24%;
Between the two indicators there is a significant
positive linear dependence since the slope of the
regression line is positive;
Also, the validity of the regression model is confirmed
by the zero level of risk reflected by the value of the
Prob (F-statistic) test;
Between the statistic value of F and t, which
corresponds
t 2 =toFthe regression slope we can check the
relation
Based on the above, we can consider the regression
model that describes the correlation between the Gross
Domestic Product and the final consumption as being a
good choice as one that accurately reflects the real
evolution of the two macroeconomic indicators. As a
result, the regression function is: GDP = -0,96 + 1,22FC
As can be seen, the final consumption is an extremely
important factor for the development Gross Domestic
Product. Thus, an increase of one million lei for final
consumption will get an increase by 1.22 million to the
Gross Domestic Product.

Figure 5. The correlogram Gross Domestic Product vs.

Final Consumption
As we can see from the chart above, the pairs of points
follow a straight path, so it is possible to analyze the
phenomenon investigated using the simple linear
regression model. Based on the graph we can say that
between the Gross Domestic Product and the final
consumption, there is a direct and linear form link.
To analyze the correlation between the evolution of
Gross Domestic Product and final consumption we
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Volume 5, No. 4, pp. 168172, 2013 Pro Universitaria

The negative value of the constant term shows that the

variables that were not included in the econometric
model have a negative effect on the development
Gross Domestic Product.

Bibliography:
1. Anghelache, C., G.R. Pagliacci, M., Prodan, L.,
(2013). "Model for macroeconomic- analyze based on
the regression function", Romanian Statistical Review,
no. 1/2013, ISSN 1018-046X.
2. Anghelache, C., Prodan, L., and staff, (2012).
"Statistical-econometric models of economic analysis the use of models in the study of the Romanian
economy, Romanian Statistical Review ( November
2012 Supplement).
3. Andrei, T., Stancu, S., Iacob, A.I., Tusa, E., (2008).
Introduction to econometrics using EViews, Editura
Economic, Bucharest.
4. Bardsen, G., Nymagen, R., Jansen, E. (2005).The
Econometrics of Macroeconomic Modelling, Oxford
University Press.
5. *** Statistical Yearbook of Romania, Editions 19912012, NIS, Bucharest

3. Conclusions
Based on all the above analysis, we can say that Gross
Domestic Product is significantly influenced by the final
consumption.
This is one corresponding economic reality of Romania
in the last twenty years since the Romanian economy
was based almost exclusively on stimulating
consumption and less on promoting a correct
investment policy.

Notes:
[1] Anghelache, C., G.R. Pagliacci, M., Prodan, L.
(2013). "Model for macroeconomic-Analyze based on
the regression function", Romanian Statistical Review,
no. 1, pp. 5-30.

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