GOODNESS OF FIT

(Statistics) Generally speaking, a "good" econometric model is one which helps to explain or account for a large proportion of the variance in the dependent variable. Large residuals, or unexplained variations, imply a poor fit, while small residuals imply a good fit. As a more precise measure of this goodness of fit, a Coefficient of Determination, R2, is used which measures the proportion of the total variation in the dependent variable explained by the variations in the independent variable(s). Also see Criteria Testing.