4 Simple regression

In this chapter we introduce simple linear regression. The basic concept is that we forecast variable $y$ assuming it has a linear relationship with variable $x$. The model is called “simple” regression as we only allow one predictor variable $x$. In Chapter 5 we will discuss forecasting with several predictor variables.

The forecast variable $y$ is sometimes also called the regressand, dependent or explained variable. The predictor variable $x$ is sometimes also called the regressor, independent or explanatory variable. In this book we will always refer to them as the “forecast variable” and “predictor variable”.