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QMT

732

(ECONOMETRICS)

Data on three-variable problem yield the following results:

33 0 0 X ' X = 0 40 20 0 20 60

132 X ' y = 24 92

∑ (Y − Y )

2

= 150

a) What is the sample size? = 33

1 X 1.1 X 2.1 1 X 1.2 X 2.2 X = . 1 X 1.33 X 2.33

1 X ' = X 1.1 X 2.1

1 X 1.2 X 2.2

.

. .

1 X 1.33 X 2.33

1 X ' X = X 1.1 X 2.1 33 0 0 0 40 20 0 20 60

1 X 1.2 X 2.2

3x33

.

. .

1 X 1.1 X 2.1 1 1 X 1.2 X 2.2 X 1.33 . X 2.33 1 X 1.33 X 2.33

33x3

1 + 1 + 1 + 1... X'X =

=

b) Compute the regression equation.

33 0 0 X ' X = 0 40 20 0 20 60

01 24 0.01 3x3 0.00 = 0.6X₂ .00 132 − 0.01 0.02 92 3x1 4 ΒOLS = − 0.2 1.03 − 0.03 − 0.00 − 0.00 0.00 0.1 / 33 1 / 0 1 / 0 (X' X) = 1 / 0 1 / 40 1 / 20 1 / 0 1 / 20 1 / 60 0.00 0.2X₁ + 1.02 0.03 ( X ' X ).03 0.00 0.00 0. X ' Y = 0.6 Therefore Y = 4 – 0.01 0.

01 0.01 0.00 0.c) Estimate the standard error of b2 and test the hypothesis that β 2 is zero As we know.00 0.X ' Y = [ − 0.6 b ' = [ − 0 .01 v (b) = 0.6/30 = 0.6] . TSS = ESS + RSS Given TSS = ∑ (Y − Y ) 2 = 150 ESS = (b’.6 ] ESS = b'.00 0.09 0.01 == ) v(b2 variance = ) v(b3 = 0.2 24 1.E = ) s(b3 = 0.6 aka e’e S² = e’e/(n-k).01 0.E = √ e’e/(n-k) = √7.01 0.2 1 . S.2 b = 1.503322 v(b1) s(b1) == ) s(b2 S.09 0. X’Y) − 0.00 0.40 = 7.00 0.00 0. = 142.40 94 TSS = ESS + RSS RSS = 150 – 142.07 .

n-k = T0. we reject the hypothesis.025. H0 : B₂ = 0 .Test hypothesis. H0 : B₂ = 0 tcal = Tα/2.30 2.042 Reject H0 Since tcal > ttable.294157 2.

would you think it came from the relationship underlying the sample data? Y = 4 – 0.E = 0.2X₁ + 1.503322 .6X₂ 1 c = − 4 2 Ŷ = c’b c ' = [1 −4 2] = [1 −4 4 2].4 Therefore RSS = -44 e) Compute a conditional prediction for Y f given x2 f = −4 and x3 f = 2 . If the actual value of Y f turned out to be 12.4 New TSS = 98.2 1. Obtain also a 95 percent interval for this prediction.d) Test the same hypothesis by running the appropriate restricted regression and examining the difference in the residual sums of squares As we know.2X₁ + 1.6 =8 95% confidence interval value of Y S.6X₂ TSS = ESS + RSS ESS = 142. Y = 4 – 0.− 0.

00 0.03 2].00 0.14 = 0.00 0.03 − 0.0.c '.75 = 0.08] c '.75 Therefore Sqrt = √0.02 = [ 0.08].8660 .( X ' X ) = [1 −4 0.00 − 0.− 4 2 0.14 0.01 0.03 − 0.03 − 0.01 1 0.( X ' X )c = [ 0.

6.I 9. therefore we reject the hypothesis.7684 = 9.7684 .2316 Upper 95% C.The confidence interval for the value Y is ŷf ± t0.7684 Lower 6. H0 : Y = 12 if X2f = -4.8660) = 8 ± 1.042(0.025. X3f = 2 .30√ c’(X’X)-1 c = 8 ± 2.2316 Since 12 is fall outside the range of its upper and lower limit.

Write a regression equation involving θ1 . Find var( α 2 − 3α 3 ) in ˆ ˆ terms of the variances of α 2 and α 3 . α 3 and α 4 . b) Write the t-statistic for testing H 0 :α 2 − 3α 3 = 1 . What is the standard error of ˆ ˆ α 2 − 3α 3 ? ˆ ˆ ˆ c) Define θ1 = α 2 − 3α 3 and θ1 = α 2 − 3α 3 . α1 . and the covariance between them.Question 2 Consider the multiple regression model: Yt = α1 + α 2 X 2t + α 3 X 3t + α 4 X 4t + α 5 X 5t + ut You would like to test the null hypothesis H 0 :α 2 − 3α 3 = 1 ˆ ˆ ˆ ˆ a) Let α 2 and α 3 denote the OLS estimators of α 2 and α 3 .

If regress variable X variables removed.2345 . which is a -For example. Advantages -Can show that an independent variable causes a change in a dependent variable. This e will be uncorrelated with Z. Basically it is a linear relationship among -The effects of all the independent more than two variables.Question 3 Explain the differences between the concepts of simple correlation. then subtract X' from X. testing the hypothesis that an association between X and Y exists -To determine if an association between two variables exists as determined using correlation Measures the degree of association -Can examine the correlations between two random variables. we have a residual e. with the among residuals (errors of effect of a set of controlling random prediction). rainfall (X4). Why is each useful? Concept Simple correlation Differences Measure of the degree to which two variables vary together. type of seedlings (X2). manure (X3). humidity (X5) is the multiple correlation co-efficient R1. This co-efficient takes value between 0 and +1. It is measured variables simultaneously on a by the coefficient of multiple dependent variable. determination. partial correlation and multiple correlation. -For example. denoted as R2. viz. It can be done this by design. -Hold some third variable constant while examining the relations between X and Y. efficient between the yield of paddy (X1) and the other variables. Partial correlation Multiple correlation . on variable Z. so any correlation X shares with another variable Y cannot be due to Z. or a measure of the intensity of the association between two variables. the correlation comeasure of the fit of a linear regression.

49 3.66 3.26 2.2 8 188.07 2.82 2. You are asked to consider the following demand functions: Y 1148 4 9348 8429 1007 9 9240 8862 6216 8253 8038 7476 5911 7950 6134 5868 3160 5872 x2 2.59 3.3 3 181.8 7 185 184 188.1 1 173.6 2.3 6 165.94 3.6 2.4 6 198.53 x4 158.21 3.23 2.77 3.6 2 186.9 2 178.65 3.13 3.24 3.12 3.2 175.2 3.73 2.Question 4 The following variables are used to determine demand for roses.2 6 172.6 7 188 x5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Yt = α1 + α 2 X 2t + α 3 X 3t + α 4 X 4t + α 5 X 5t + ut ln Yt = β1 + β 2 ln X 2t + β 3 ln X 3t + β 4 ln X 4t + β 5 X 5t + ut .85 4.96 4.64 2.49 2.91 2. The quarterly data on these variables are given in Table 1.77 3.06 3.69 x3 3.58 3.89 3.54 3.4 9 183.9 8 180.76 3.64 3.

the own-price. you have to refer to the the log-linear model (in Question 4).a) Estimate the parameters of the linear model and interpret the results b) Estimate the parameters of the log-linear model and interpret the results c) β 2 . What are their a priori signs? Do the results concur with the a priori expectations? d) How would you compute the own-price. β 3 and β 4 give. what may be the reasons? . is it significantly different from unity? d) A priori. what are the expected signs of X 3 (price of carnations) and X 4 (income)? Are the empirical results in accord with these expectations? e) If the coefficients of X 3 and X 4 are statistically insignificant. cross-price and income elasticities for the linear model? e) On the basis of your analysis which model if either would you choose and why? Question 5 To answer Question 5. respectively. ln Yt = β1 + β 2 ln X 2t + β 3 ln X 3t + β 4 ln X 4t + β 5 X 5t + ut a) What is the estimated own-price elasticity of demand (elasticity with respect to the price of roses)? b) Is it statistically significant? c) If so. cross-price and income elasticities of demand.

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