This book deals with the methods and practical uses of regression and
factor analysis. An exposition is given of ordinary, generalized, two-
and three-stage estimates for regression analysis, the method of
principal components being applied for factor analysis. When
establishing an econometric model, the two ways of analysis complement
each other. The model was realized as part of the 'Interplay' research
project concerning the economies of the European Common Market countries
at the Econometrics Department of the Tilburg School of Economics. The
Interplay project aims at: a. elaborating more or less uniformly defined
and estimated models; b. clarifying the economic structure and the
economic policy possible with the linked models of the European
Community countries. Besides the model for the Netherlands published
here, the models for Belgium, Italy, West Germany and the United Kingdom
are ready for linking and for publishing later on. The econometric model
presented in this book and upon which the Interplay model is based
comprises eleven structural and twenty-one definitional equations; it is
estimated with ordinary, two- and three-stage least squares. The
analysis of the model is directed at eliminating multicollinearity,
accor- ding to D.E. Farrar's and R. Glauber's method. In practice,
however, complete elimination of multicollinearity leads to an exclusion
of certain relations which is not entirely satisfactory. Economic
relations can be dealt with more fully by analyzing the variables
involved in detail by factor analysis. In this study factor analysis is
also a suitable method for a comparative analysis of different periods.
