Econometrics-I

BSC- III
Spring 2020
Lahore School of Economics
Final-Term Examination
Name: __________________ Section: ______
Student ID: ______________ Total Marks: 80
Section II

Question 1 (16 marks): Using data from the 2006 Indian DHS survey of 976 women—which
includes a measure of autonomy of the women surveyed (a scale from 0-10, 10 being the most
autonomous), a dummy for husband’s education greater than primary school (husb_educ), and
a dummy for an urban location (urban)—we estimate the following model:

reg autonomy husb_educ urban

a) Fully interpret the result of location and the role of husband’s education on women’s
autonomy. Use p-values to show how confident you are of each variable’s impact on
autonomy. (6 marks)

b) Find the predicted autonomy scores for the following women: (10 marks)

Live in Urban Areas

Husband has primary education Part b(i)

Husband has more than

Part b(ii)
primary education

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Question 2 (19 marks): Suppose an econometrician gathers information on the number of
cigarettes smoked by students in local universities in Lahore. The econometrician gathers data
from 100 students on the number of cigarettes smoked per day (smoke), the education of the person
in years (educ), the income of the person (income) in rupees thousands, and two dummy variables:
if the person lives in an area in which restaurants ban smoking (restban) and if the person is a
female (female).

a) Write a regression equation that would help you predict the effect of your independent
variables on the number of cigarettes smoked per day. (4 marks)

b) Write a regression equation that would help you predict the effect of your independent
variables on the number of cigarettes smoked per day if you knew that the effect of
education varied with gender (whether the person is a female). (5 marks)

c) From your model in (b), assume smoking only depends on education and gender. Now,
using a graph with smoking on the vertical axis and education on the horizontal axis,
show the relationship between smoking and education separately for men and women.
Clearly label your intercepts and slopes. (10 marks)

Question 3 (10 marks): Consider the following model of car sales:

ln(𝑞𝑛𝑐) = 𝛽0 + 𝛽𝑝 ln(𝑝𝑟𝑖𝑐𝑒) + 𝛽𝑖𝑛𝑐 ln(𝑖𝑛𝑐𝑜𝑚𝑒) + 𝑢

where qnc is the number of cars sold (in thousands), price is the average price of new cars (in
$1,000), and income is the per capita income (in $1,000).

The estimation of the model with quarterly car sales and seasonal dummy variables in the U.S.
from 1975 to 1990 gives:

ln(𝑞𝑛𝑐) = 𝛽0 + 𝛽𝑝 ln(𝑝𝑟𝑖𝑐𝑒) + 𝛽𝑖𝑛𝑐 ln(𝑖𝑛𝑐𝑜𝑚𝑒) + 𝛽𝑊 𝑤𝑖𝑛𝑡𝑒𝑟 + 𝛽𝑠𝑝 𝑠𝑝𝑟𝑖𝑛𝑔 + 𝛽𝑠 𝑆𝑢𝑚𝑚𝑒𝑟 + 𝑢

where winter = 1 for the winter quarter and 0 otherwise, spring = 1 for the spring quarter and 0
otherwise, and summer = 1 for the summer quarter and 0 otherwise.

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Using results from model 1 and 2, perform a joint test of significance on the parameters on the
seasonal variables. Do you find evidence of seasonality in car sales? (hint: the null in this case
would be that of no seasonality). [F-critical= 2.76] (10 marks)

Question 4 (15 marks): For each of the following estimated equations of weekly wage (in $) on
education (in years), interpret in a sentence the relationship between education and wage:

(𝑎)𝑤𝑎𝑔𝑒
̂ = 150 + 100 log(𝑒𝑑𝑢𝑐)

̂
(𝑏) log(𝑤𝑎𝑔𝑒) = 5 + 0.08𝑒𝑑𝑢𝑐

̂
(𝑐) log(𝑤𝑎𝑔𝑒) = 3 + 1.2log⁡(𝑒𝑑𝑢𝑐)

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Question 5 (20 marks):

The following graph depicts the number of deaths in Korea due to the Coronavirus starting from
January 22nd up to 10th May for the year 2020. The vertical axis represents the number of deaths
in Korea due to the coronavirus and the horizontal axis represents the time frame (starting from
22nd January, 2020 up to 10th May, 2020).
10000
8000
Corona Deaths in Korea

6000
4000
2000

01feb2020 01mar2020 01apr2020 01may2020

date

a) We estimated the following regression using the above data.

. reg coronadeathsinkorea date aprildummy date_aprildummy

Source SS df MS Number of obs = 110

F(3, 106) = 282.36
Model 2.0502e+09 3 683401514 Prob > F = 0.0000
Residual 256551535 106 2420297.5 R-squared = 0.8888
Adj R-squared = 0.8856
Total 2.3068e+09 109 21162899.8 Root MSE = 1555.7

coronadeathsi~a Coef. Std. Err. t P>|t| [95% Conf. Interval]

date 133.598 5.816679 22.97 0.000 122.0659 145.1301

aprildummy 2362817 733845.1 3.22 0.002 907898.2 3817737
date_aprildummy -107.281 33.32744 -3.22 0.002 -173.3558 -41.20608
_cons -2931817 127846.4 -22.93 0.000 -3185285 -2678349

Variables Description
date Time span starting from January 22nd till May 10th, 2020.
aprildummy =1 for days in the month of April and 0 otherwise
date_aprildummy date*aprildummy (interaction term)
t Time variable
tsq t*t= time squared

Looking at the regression results above, what can you conclude about the coronavirus
deaths in Korea? Explain carefully. (6 marks)

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b) It has been theorized that higher temperatures may reduce the incidences of coronavirus
(and thus deaths). Therefore, it could be very useful to take the daily data on deaths in
Korea due to coronavirus (coronadeathsinkorea) and regress it against daily high
temperatures (temp_korea) and a time trend (t). This relationship is tested in the
regression below.
. reg coronadeathsinkorea temp_korea t

Source SS df MS Number of obs = 110

F(2, 107) = 379.16
Model 2.0215e+09 2 1.0108e+09 Prob > F = 0.0000
Residual 285241600 107 2665809.34 R-squared = 0.8763
Adj R-squared = 0.8740
Total 2.3068e+09 109 21162899.8 Root MSE = 1632.7

coronadeat~a Coef. Std. Err. t P>|t| [95% Conf. Interval]

temp_korea 24.20041 37.11135 0.65 0.516 -49.36852 97.76934

t 131.2576 7.512697 17.47 0.000 116.3645 146.1506
_cons -1414.707 357.8535 -3.95 0.000 -2124.11 -705.304

What can you say about the relationship between the coronavirus deaths in Korea and
daily high temperatures? (6 marks)

c) For the validity of regression analysis, it is crucial to know whether or not dependent or
independent variables are highly persistent. We ran the Dickey-Fuller test on both of our
variables. Interpet the results given below and clearly state the null and the alternative
hypothesis while intrepreting your results. (8 marks)
. dfuller coronadeathsinkorea

Dickey-Fuller test for unit root Number of obs = 109

Interpolated Dickey-Fuller
Test 1% Critical 5% Critical 10% Critical
Statistic Value Value Value

Z(t) -1.185 -3.507 -2.889 -2.579

MacKinnon approximate p-value for Z(t) = 0.6798

. dfuller temp_korea

Dickey-Fuller test for unit root Number of obs = 109

Interpolated Dickey-Fuller
Test 1% Critical 5% Critical 10% Critical
Statistic Value Value Value

Z(t) -3.239 -3.507 -2.889 -2.579

MacKinnon approximate p-value for Z(t) = 0.0178

T-Critical values
Critical values for the t-distribution
t-crit Significance level
1.64 10%
1.96 5%
2.58 1%

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