Ordinary Least Squares

This chapter examines the role of Ordinary Least Squares (OLS) regression in Economics, unraveling its principles, applications, and implications. OLS is a fundamental tool for estimating parameters in linear regression models, offering simplicity, interpretability, and versatility. The chapter covers the historical emergence of OLS, its mathematical foundation, and its broad applications in economic analysis. The investigation of OLS’s implications spans policy evaluation, forecasting, market analysis, labor studies, financial economics, and business decision-making. The chapter also addresses the limitations of OLS and critiques. In conclusion, the chapter highlights OLS as a transformative and indispensable tool, providing both a mathematical framework for parameter estimation and a lens for deeper insights into economic phenomena.