Y= a +bx , Y is realty market (dependent Factor) and rate of inflation is x which is fixed say 19%. What would be a (constant) here?
The average/median home price increases with time because they are bigger, have more amenities,and land values increases due to higher population densities as well as inflation.
Home prices increases with the CPI , the change in CPI ( inflation) would correlate with the change in home prices. If you used change in price for Y then the constant would be the average increase due to the other factors.
April 12th, 2010 at 5:07 am
The average/median home price increases with time because they are bigger, have more amenities,and land values increases due to higher population densities as well as inflation.
Home prices increases with the CPI , the change in CPI ( inflation) would correlate with the change in home prices. If you used change in price for Y then the constant would be the average increase due to the other factors.
References :
April 12th, 2010 at 5:31 am
you cannot have the independent variable fixed, your regression will fail.
constant has no useful interpretation. You cannot say that it is the level of Y if inflation is equal to zero, b/c that would be out-of-sample prediction (unless you have observations with zero and below-zero inflation in your dataset).
References :