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CONCORDIA UNIVERSITY

Department of Economics

ECON 222/2 SECTIONS A and AA

STATISTICAL METHODS II
FALL 2014 – ASSIGNMENT 2
Due: Tuesday, October 14, before 4:00 pm

observations  for  each  of  five  variables  for  90  American  cities:

Variable   Variable  Name   Description
Y   HouseValue   Mean  market  price  for  houses
X1   CommProp   Percentage  of  municipal  tax  revenue  from  commercial  property
X2   HouseSize   Mean  number  of  rooms  in  houses
X3   TaxRate   Tax  rate  per  thousand  dollars  of  assessed  value  for  houses
X4   Income   Mean  household  income

a. Use  Excel  to  estimate  the  following  relationship:

Yi = β0 + β1 X1i + β2 X 2i + β3 X3i + β 4 X 4i + εi

Attach  the  Excel  output.  (4  marks)

b. Use  EViews  to  estimate  the  same  relationship.    Attach  the  EViews  output.  (4  marks)

c. The  two  outputs  should  be  the  same.    Write  out  the  estimated  model,  including  the
standard  errors  in  parentheses  under  the  estimated  coefficients,  n,   R 2  and  RSS  (use
Question  1  from  Tutorial  3  as  a  template).  (3  marks)

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d. Do  the  coefficients  have  the  signs  that  you  expected?    Make  sure  to  explain  if  you  felt  any  of
the  signs  could  have  been  ambiguous.  (8  marks)

e. By  comparing  just  the  estimated  coefficients,  could  you  say  that  the  mean  number  of  rooms
has  a  stronger  influence  on  the  mean  market  price  for  houses  than  the  percentage  of
municipal  tax  revenue  that  comes  from  commercial  property?  (4  marks)

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f. Predict  the  mean  market  price  for  houses  for  the  following  two  scenarios  and  comment  on
the  difference.  (4  marks)

Scenario  1:     X1 = 0.225 ,   X 2 = 5.718 ,   X3 = 0.036  and   X 4 = 3678
Scenario  2:     X1 = 0.099 ,   X 2 = 5.237 ,   X3 = 0.018  and   X 4 = 3044

g. Develop  and  test  appropriate  hypotheses  about  the  individual  slope  coefficients  at  the  10
percent  significance  level.  (10  marks)

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h. Develop  and  test  an  appropriate  hypothesis  about  the  overall  fit  of  the  model  at  the  5
percent  significance  level.  (5  marks)

i. Suppose  that  all  the  “classical  assumptions”  hold.    Does  this  mean  that  the  true  marginal
effect  of  a  one-­‐unit  increase  in  the  mean  number  of  rooms  in  houses  is  50  (ie,  \$50  000)?
Explain.  (4  marks)

j. The  value  of   R 2  is  relatively  low.    Does  this  mean  that  the  regression  model  cannot  be  used
to  predict  mean  house  prices  for  a  given  city?  Why  or  why  not?  (4  marks)

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2.   (30  marks)  An  agent  wants  to  find  the  relationship  between  the  number  of  weeks  houses  are
on  the  market  prior  to  sale,  Y,  and  the  difference  between  the  asking  price  and  the  municipal
taxable  value  (in  thousands  of  dollars),  X.    The  following  basic  statistics  based  were  calculated
for  14  observations:

∑Y = 168
i ∑ X = 1624
i ∑Y i
2
= 2436.02

∑ X = 211856
i
2
∑ X Y = 22131.7
i i ∑e 2
i = 122.255

a. Calculate  the  estimated  intercept  coefficient,   β̂0 ,  and  slope  coefficient,   β̂1 .  (6  marks)

b. Write  down  the  estimated  regression  equation  and  interpret  the  value  of  the  slope
coefficient.  (4  marks)

c. Calculate  the  estimated  error  variance,   σˆ 2 .  (3  marks)

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d. Calculate  the  coefficient  of  determination,   R 2 .    Briefly  explain  what  it  means.  (5  marks)

e. Calculate  the  estimated  standard  errors  for  the  intercept  coefficient,   sβ̂ ,  and  the  slope
0

1
coefficient,   sβ̂ .  (Hint:   sβ̂ = sβ̂ ∑ Xi2 .)  (4  marks)
1 0 1
n

f. Develop  and  test  an  appropriate  hypothesis  about  the  slope  coefficient  at  the  5  percent
significance  level.  (4  marks)

g. Develop  a  95-­‐percent  confidence  interval  for  the  true  value  of   β1 .  (4  marks)
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3.   (20  marks)  The  following  table  comes  from  a  multiple  regression  model  that  was  run  on  Excel.
An  avionics  manufacturer  wants  to  establish  the  relationship  between  the  monthly  sales  of
navigation  units,  Y,  and  the  number  of  ads  placed  in  monthly  magazines,  X1,  and  the  interest
rate  charged  on  credit  customers,  X2.

a. Write down the formulae for each of the highlighted cells.  (8  marks)
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b. Calculate the values for each of the highlighted cells.  (8  marks)