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Back to Basics: Is Statistical Significance all that Matters?

Nektarios Michail and Constantinos I. Massouras

No 2014-3, Working Papers from Central Bank of Cyprus

Abstract: We examine whether statistical significance can convey all the information necessary for the econometrician to judge the performance of his models. We find that in some cases, the t-statistic and the R-squared can be biased due to high correlation between the variables and variables can appear significant even though their correlation with the dependent variable is very low. The solution we propose is a back-to-basics approach: examine correlations between variables and variable variances in order for a correct interpretation of the regression outcome.

Keywords: correlation; statistical significance; hypothesis testing; t test; F test (search for similar items in EconPapers)
JEL-codes: C12 C21 C31 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2014-09
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