MIZAN TEPI UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ECONOMICS

ASSIGNMENT FOR ADVANCED ECONOMETRICS

MSc DEGREE IN DEVELOPMENT ECONOMICS

1. What is spurious regression and its causes?

2. The demand for Banana surrounding the main campus of Mizan Tepi University was
estimated and the regression equation of the estimation is reported as follows.
ln(𝑄) = 20 − 2 ln(𝑃) + 10 ln(𝑌)
Where Q and P are the quantity and price of Banana obtained in the survey and Y is
mean income of the surveyed individuals.
i. Find the price elasticity of demand and interpret it
ii. Find the income elasticity of demand and interpret it
iii. Interpret the constant term
iv. If the price fall of Mango decreases the quantity demand of Banana, what would be
its effect on the estimation?
3. The following table includes the Life expectancy (Y), safe-water (𝑋1) and the average
annual population growth (𝑋2) for Mizan Aman town over five years period.

Year Y (thousands) 𝐗 𝟏 (thousands) 𝐗 𝟐 (thousands)

1 -3.7 3 8

2 3.5 4 5

3 2.5 5 7

4 11.5 6 3

5 5.7 2 1

1
 i. ̂1 , 𝑎𝑛𝑑 𝛽
Find the estimated values 𝛼̂, 𝛽 ̂2 , (4 pts) b0=2.796, b1=2.28, b2=-1.67
ii. Find the estimated equation (2pts.)
iii. Interpret the meaning of the constant term and the slope coefficient of X1 (2pts)
4. Suppose we postulate that saving is linearly related to income. Based on the following
information:

Year Y X

1 8 4

2 6 3

3 12 10

4 13 8

5 9 7

6 10 9

7 7 6

8 11 5

9 14 11

10 16 12

i. Delete the middle two observations and obtain the first observations residual sum
of squares.
ii. Delete the middle two observations and obtain the second observations residual
sum of squares.
iii. Compute the Goldfield-Quandt F-statistic.
iv. Find the critical F-value.
v. Is there a problem of heteroscedasticity?