ECOM023 Econometrics

Exercise Sheet 3: Solutions

R.G. Pierse

Q1. For the model

y1 = X1 1 + e1
y2 = X2 2 + e2

where X1 is of dimension n k1 and rank k1 , and X2 is of dimension

n k2 and rank k2 . We assume that E(e1 ) = 0, E(e2 ) = 0 , and
E(ei e0j ) = ij In .
In this case
X1 0 X1 0
X= = =I X1
0 X2 0 X1
and we have that the SURE (GLS) estimator is given by
e = (X0 ( 1 I)X) 1 X0 ( 1 I)y
= ((I X01 )( 1 I)(I X1 )) 1 (I X1 )( 1
I)y
= ( 1 (X01 X1 )) 1 ( 1 X01 )y
= ( (X01 X1 ) 1 )( 1 X01 )y
= (Im (X01 X1 ) 1 X01 )y
(X01 X1 ) 1 X01 0 y1
=
0 (X01 X1 ) 1 X01 y2
" #
(X01 X1 ) 1 X01 y1 b1
= 1 = b2
(X01 X1 ) X01 y2
i.e. GLS = OLS in this case.
 Q2.
Dependent Variable: IGM
Method: Least Squares
Sample: 1 20
Included observations: 20
===============================================================
Variable Coefficient Std. Error t-Statistic Prob.
===============================================================
C -149.7825 105.8421 -1.415150 0.1751
FGM 0.119281 0.025834 4.617173 0.0002
CGM 0.371445 0.037073 10.01933 0.0000
===============================================================
R-squared 0.921354 Mean dependent var 608.0200
Adjusted R-squared 0.912102 S.D. dependent var 309.5746
S.E. of regression 91.78167 Akaike info criterion 12.01418
Sum squared resid 143205.9 Schwarz criterion 12.16354
Log likelihood -117.1418 F-statistic 99.57927
Durbin-Watson stat 0.937454 Prob(F-statistic) 0.000000
===============================================================
Dependent Variable: IC
Method: Least Squares
Sample: 1 20
Included observations: 20
===============================================================
Variable Coefficient Std. Error t-Statistic Prob.
===============================================================
C -6.189961 13.50648 -0.458296 0.6525
FC 0.077948 0.019973 3.902602 0.0011
CC 0.315718 0.028813 10.95743 0.0000
===============================================================
R-squared 0.913578 Mean dependent var 86.12350
Adjusted R-squared 0.903411 S.D. dependent var 42.72556
S.E. of regression 13.27856 Akaike info criterion 8.147660
Sum squared resid 2997.444 Schwarz criterion 8.297020
Log likelihood -78.47660 F-statistic 89.85509
Durbin-Watson stat 1.984036 Prob(F-statistic) 0.000000
===============================================================

2
Dependent Variable: IGE
Method: Least Squares
Sample: 1 20
Included observations: 20
===============================================================
Variable Coefficient Std. Error t-Statistic Prob.
===============================================================
C -9.956306 31.37425 -0.317340 0.7548
FGE 0.026551 0.015566 1.705705 0.1063
CGE 0.151694 0.025704 5.901548 0.0000
===============================================================
R-squared 0.705307 Mean dependent var 102.2900
Adjusted R-squared 0.670637 S.D. dependent var 48.58450
S.E. of regression 27.88272 Akaike info criterion 9.631373
Sum squared resid 13216.59 Schwarz criterion 9.780733
Log likelihood -93.31373 F-statistic 20.34355
Durbin-Watson stat 1.072099 Prob(F-statistic) 0.000031
===============================================================

Dependent Variable: IW
Method: Least Squares
Sample: 1 20
Included observations: 20
===============================================================
Variable Coefficient Std. Error t-Statistic Prob.
===============================================================
C -0.509390 8.015289 -0.063552 0.9501
FW 0.052894 0.015707 3.367658 0.0037
CW 0.092406 0.056099 1.647205 0.1179
===============================================================
R-squared 0.744446 Mean dependent var 42.89150
Adjusted R-squared 0.714381 S.D. dependent var 19.11019
S.E. of regression 10.21312 Akaike info criterion 7.622705
Sum squared resid 1773.234 Schwarz criterion 7.772065
Log likelihood -73.22705 F-statistic 24.76109
Durbin-Watson stat 1.413021 Prob(F-statistic) 0.000009
===============================================================

3
Dependent Variable: IUS
Method: Least Squares
Sample: 1 20
Included observations: 20
===============================================================
Variable Coefficient Std. Error t-Statistic Prob.
===============================================================
C -30.36853 157.0477 -0.193371 0.8490
FUS 0.156571 0.078886 1.984782 0.0635
CUS 0.423866 0.155216 2.730808 0.0142
===============================================================
R-squared 0.440312 Mean dependent var 405.4600
Adjusted R-squared 0.374467 S.D. dependent var 129.3519
S.E. of regression 102.3053 Akaike info criterion 12.23128
Sum squared resid 177928.3 Schwarz criterion 12.38064
Log likelihood -119.3128 F-statistic 6.687039
Durbin-Watson stat 0.909068 Prob(F-statistic) 0.007203
===============================================================

In general the OLS and SURE estimates are similar - largest di¤er-
ences are for coe¢ cients of CW and FUS. the estimated standard
errors from SURE are generally smaller then for the OLS estimates.
Note that the DW statistic indicates misspeci…cation in some of the
regressions.

Table: EViews SURE Estimates (s.e.s in parentheses)

GM C GE W US
CON -162.3641 0.504304 -22.43891 1.088877 85.42325
(89.46) (11.51) (25.52) (6.26) (111.88)
F 0.120493 0.069546 0.037291 0.057009 0.101478
(0.022) (0.017) (0.012) (0.011) (0.055)
C 0.382746 0.308545 0.130783 0.041506 0.399991
(0.033) (0.026) (0.022) (0.041) (0.128)

4
System: UNTITLED
Estimation Method: Seemingly Unrelated Regression
Date: 02/05/03 Time: 18:06
Sample: 1 20
Included observations: 20
Total system (balanced) observations 100
===============================================================
Coefficient Std. Error t-Statistic Prob.
===============================================================
C(1) -162.3641 89.45923 -1.814951 0.0731
C(2) 0.120493 0.021629 5.570868 0.0000
C(3) 0.382746 0.032768 11.68047 0.0000
C(4) 0.504304 11.51283 0.043804 0.9652
C(5) 0.069546 0.016898 4.115732 0.0001
C(6) 0.308545 0.025864 11.92971 0.0000
C(7) -22.43891 25.51859 -0.879316 0.3817
C(8) 0.037291 0.012263 3.040936 0.0031
C(9) 0.130783 0.022050 5.931272 0.0000
C(10) 1.088877 6.258804 0.173975 0.8623
C(11) 0.057009 0.011362 5.017416 0.0000
C(12) 0.041506 0.041202 1.007400 0.3166
C(13) 85.42325 111.8774 0.763543 0.4473
C(14) 0.101478 0.054784 1.852344 0.0674
C(15) 0.399991 0.127795 3.129956 0.0024
===============================================================
Determinant residual covariance 6.18E+13
===============================================================

5
Equation: IGM = C(1) + C(2)*FGM + C(3)*CGM
Observations: 20
R-squared 0.920742 Mean dependent var 608.0200
Adjusted R-squared 0.911417 S.D. dependent var 309.5746
S.E. of regression 92.13828 Sum squared resid 144320.9
Durbin-Watson stat 0.936490
===============================================================
Equation: IC = C(4) + C(5)*FC + C(6)*CC
Observations: 20
R-squared 0.911862 Mean dependent var 86.12350
Adjusted R-squared 0.901493 S.D. dependent var 42.72556
S.E. of regression 13.40980 Sum squared resid 3056.985
Durbin-Watson stat 1.917509
==============================================================
Equation: IGE = C(7) + C(8)*FGE + C(9)*CGE
Observations: 20
R-squared 0.687636 Mean dependent var 102.2900
Adjusted R-squared 0.650887 S.D. dependent var 48.58450
S.E. of regression 28.70654 Sum squared resid 14009.12
Durbin-Watson stat 0.962757
===============================================================
Equation: IW = C(10) + C(11)*FW + C(12)*CW
Observations: 20
R-squared 0.726429 Mean dependent var 42.89150
Adjusted R-squared 0.694244 S.D. dependent var 19.11019
S.E. of regression 10.56701 Sum squared resid 1898.249
Durbin-Watson stat 1.259005
===============================================================
Equation: IUS = C(13) + C(14)*FUS + C(15)*CUS
Observations: 20
R-squared 0.421959 Mean dependent var 405.4600
Adjusted R-squared 0.353954 S.D. dependent var 129.3519
S.E. of regression 103.9692 Sum squared resid 183763.0
Durbin-Watson stat 1.017982
===============================================================