CHAPTER 5 Multiple Regression Analysis: OLS Asymptotics

Deadline: 04.12.2021

Tarverdiyeva Afag

Quluzada Aydan

Mammadova Bakhtikhanim

Alizada Lala

Theoretical Exercise

1. Please describe The Lagrange Multiplier Statistic and it’s procedure.

The Lagrange multiplier or LM statistic is an alternative for testing multiple exclusion
restrictions
Because the LM statistic uses an auxiliary regression it’s sometimes called an nR2
stat.
Suppose we have a standard model, y = b0 + b1x1 + b2x2 + . . . bkxk + u and our null
hypothesis is
H0: bk-q+1 = 0, ... , bk = 0
First, we just run the restricted model
~ ~ ~ ~
y   0  1 x1  ...   k  q xk  q  u
Now take the residuals, u ~ , and regress
~ on x , x ,..., x (i.e. all the variables )
u 1 2 k

LM  nR , where Ru2 is from this reg

2
u

a
LM ~  q2 , so can choose a critical
value, c, from a  q2 distributi on, or
just calculate a p - value for  q2
With a large sample, the result from an F test and from an LM test should be similar
Unlike the F test and t test for one exclusion, the LM test and F test will not be
identical

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Computer Exercises

Answers:

C1. 1)

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2)

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 3) The residuals from the log(wage) regression appear to be more normally distributed. Certainly
the histogram in part (b) fits under its comparable normal density better than in part (a), and the
histogram for the wage residuals is notably skewed to the left. In the wage regression there are
some very large residuals (roughly equal to 15) that lie almost five estimated standard deviations
14 (mean = 3.085) from the mean of the residuals, which is identically zero, of course. Residuals
far from zero does not appear to be nearly as much of a problem in the log(wage) regression.

C2. 1) The regression equation for all 4,137 observations is given below:

Where, colgpa, hspers and sats are variables in the equation. The regression

equation indicates that the variable hsperc is negatively related to colgpa and sat is
positively related to colgapa. The p-values in the parenthesis indicate that both are
significant at 5 percent level.

C3. bwght = b0 + b1cigs + b2parity + b3faminc + b4motheduc + b5fatheduc + u

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mother's education and the fathers education are jointly, insignificant

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