Faculty of Economics and Political Sciences

Economics Department
Third Year
Econometrics I
TA. Menna Sherif

SHEET 2 (A): PROBLEMS

MULTIPLE LINEAR REGRESSION MODEL

1. If we have the following original data about Y, 𝑿𝟐 , 𝑿𝟑 , for 5 observations:

∑ 𝑋2=0 ∑ 𝑋32 =15

∑ 𝑋22 =10 ∑ 𝑌𝑋3=14
∑ 𝑌𝑋2=-5 ∑ 𝑌=10
∑ 𝑋3=7 ∑ 𝑌 2 =24 ∑ 𝑋2 𝑋3=4

Where:
Y: the degree
𝑥2 : The hours of practice.
𝑥3 : the level of the intellect.

a) Estimate the linear regression equation.

b) Predict the degree of a certain labour who has hours of practice equal =3, level of
intellect=5.
c) Estimate 𝜎 2 .
d) Estimate the standard error of the vector 𝛽.
e) Construct the ANOVA table and test the overall significance of regression.
f) Calculate 𝑅 2 , and interpret your result.
g) Do you think that it is necessary to add 𝑋3 to the regression model?

2. In an application of the Cobb-Douglas production function the following

results were obtained:

ln Yˆi = 2.3542 + 0.9576 ln X 2i + 0.8242 ln X 3i

(0.3022) (0.3571)

R 2 =0.8432 , 𝑐𝑜𝑣(𝛽̂2 , 𝛽̂3) = 0.0576 df = 12

Where Y= output, X2= labor input, and X3= capital input, and where the figures in
parentheses are the estimated standard errors.

1
 a) Interpret slope coefficients.
b) Test the hypothesis that the slope coefficients are individually equal to unity.
c) Test the hypothesis that the slope coefficients are equal.
d) How would you test the overall significance of the preceding regression equation?

3. If the estimated linear regression equation of the following production

function as follow:

Log Y= Constant – 0.519 Log 𝑋2- 4.933 Log 𝑋3

(Se) (0.231) (0.477) 𝑅 2 = 0.793

𝑋2= labour input 𝑋3= capital input

N= 30

a) Interpret the numbers of the estimated equation.

b) Test the significance of each coefficient.
c) Test the significance of the overall regression.
d) Does the model fit the data?
e) Can we say something about the returns of scale in this industry? Explain?

4. The following information reflects the demand for roses in Metro Detroit Area,
from 2012-III
. regress to 2016-II.
lny lnx2 lnx3 lnx4 lnx5

Source SS df MS Number of obs = 16

F( 4, 11) = 7.77
Model 1.04343377 4 .260858442 Prob > F = 0.0032
Residual .369165077 11 .033560462 R-squared = 0.7387
Adj R-squared = 0.6436
Total 1.41259884 15 .094173256 Root MSE = .1832

lny Coef. Std. Err. t P>|t| [95% Conf. Interval]

lnx2 -.7296332 .3955748 -1.84 0.092 -1.600287 .141021

lnx3 -.0440262 .1739312 -0.25 0.805 -.4268463 .3387938
lnx4 2.120171 1.360282 1.56 0.147 -.8737897 5.114133
lnx5 -.283438 .1158231 -2.45 0.032 -.5383628 -.0285131
_cons -.700089 6.981282 -0.10 0.922 -16.06579 14.66561

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The variables are as follows: Y: quantity of roses sold, dozens. X2: average wholesale
price of roses, $/dozen. X3: average wholesale price of carnations, $/dozen. X4: average
weekly family income, $/week. X5: trend variable taking values of 1, 2 and so on, for the
period 2012-III to 2016-II in Metro Detroit Area.

1- Write the regression line and interpret your result.

2- Estimate the variance and the standard deviation of the error term.
3- Test the significance of each individual coefficient.
4- Is the whole model statistically significant?