ESGC 6320/6356 APPLIED ECONOMETRICS

COMPUTER LABORATORY TEST

24 MAY 2012
QUESTION 1
Table ML112Q1 has data on variables Y and X.
(a)

Estimate the following model: Yt = 0 + 1Xt + t

Dependent Variable: Y
Method: Least Squares
Sample: 1947Q1 1972Q4
Included observations: 104
Variable
Coefficient
C
70.67592
X
0.860012
R-squared
0.998711
Adjusted R-squared
0.998698
S.E. of regression
18.04716
Sum squared resid
33221.38
Log likelihood
-447.4306
F-statistic
79005.80
Prob(F-statistic)
0.000000

i.

Std. Error
t-Statistic
6.019729
11.74071
0.003060
281.0797
Mean dependent var
S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat

Prob.
0.0000
0.0000
1687.933
500.1494
8.642897
8.693750
8.663499
0.867650

Test for the first-order autocorrelation

Breusch-Godfrey Serial Correlation LM Test:

F-statistic
Obs*R-squared

47.06273
33.05710

Prob. F(1,101)
Prob. Chi-Square(1)

0.0000
0.0000

Since prob(Obs*R2) = 0.0000 < = 0.05, Reject H0, there is evidence of first-order
autocorrelation.
ii. Obtain the second round estimate of
Round 1
Dependent Variable: UHAT
Method: Least Squares
Sample (adjusted): 1947Q2 1972Q4
Included observations: 103 after adjustments
Variable
Coefficient
Std. Error
t-Statistic
UHAT(-1)
0.566704
0.082246
6.890374
R-squared
0.317619 Mean dependent var
Adjusted R-squared
0.317619 S.D. dependent var
S.E. of regression
14.90456 Akaike info criterion
Sum squared resid
22658.89 Schwarz criterion
Log likelihood
-423.9200 Hannan-Quinn criter.
Durbin-Watson stat
1.943467

Prob.
0.0000
-0.038358
18.04287
8.250873
8.276453
8.261234

Dependent Variable: Y1
Method: Least Squares
Sample (adjusted): 1947Q2 1972Q4
Included observations: 103 after adjustments
Variable
Coefficient
Std. Error
t-Statistic
C
32.43388
5.016498
6.465442
X1
0.857654
0.005780
148.3811
R-squared
0.995434 Mean dependent var
Adjusted R-squared
0.995388 S.D. dependent var
S.E. of regression
14.96512 Akaike info criterion
Sum squared resid
22619.44 Schwarz criterion
Log likelihood
-423.8302 Hannan-Quinn criter.
F-statistic
22016.95 Durbin-Watson stat
Prob(F-statistic)
0.000000

Prob.
0.0000
0.0000
743.9043
220.3700
8.268548
8.319708
8.289269
1.941469

0 = */(1-) = 32.43388/0.433296 = 74.85386

GENR UHAT1=Y-74.85386 -0.857654*X
LS UH1 UH1(-1)
Round 2
Dependent Variable: UHAT1
Method: Least Squares
Sample (adjusted): 1947Q2 1972Q4
Included observations: 103 after adjustments
Variable
Coefficient
Std. Error
t-Statistic
UHAT1(-1)
0.570629
0.081778
6.977814
R-squared
0.322997 Mean dependent var
Adjusted R-squared
0.322997 S.D. dependent var
S.E. of regression
14.89141 Akaike info criterion
Sum squared resid
22618.92 Schwarz criterion
Log likelihood
-423.8290 Hannan-Quinn criter.
Durbin-Watson stat
1.949255

Prob.
0.0000
0.235964
18.09842
8.249108
8.274688
8.259468

= 0.570629
(b)

Use Engle-Granger test for cointegration to determine whether the Y and X series are
cointegrated.

Null Hypothesis: Y has a unit root

Exogenous: Constant, Linear Trend
Lag Length: 0 (Fixed)
Augmented Dickey-Fuller test statistic
Test critical values:
1% level
5% level
10% level
*MacKinnon (1996) one-sided p-values.
Augmented Dickey-Fuller Test Equation
Dependent Variable: D(Y)
Method: Least Squares
Included observations: 103 after adjustments
Variable
Coefficient
Std. Error
Y(-1)
0.008730
0.015944

t-Statistic
0.547536
-4.049586
-3.454032
-3.152652

t-Statistic
0.547536

Prob.*
0.9993

Prob.
0.5852

C
@TREND(1947Q1)
R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)

-2.760483
0.100935
0.187213
0.170957
15.28975
23377.63
-425.5282
11.51670
0.000032

13.72443
-0.201136
0.261847
0.385476
Mean dependent var
S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat

0.8410
0.7007
17.13107
16.79236
8.320936
8.397675
8.352018
1.989219

The computed ADF test-statistic (0.5475) is greater than the critical "tau", thus we do not reject the Ho.
That means the "Y" is non-stationary at level.
Null Hypothesis: D(Y) has a unit root
Exogenous: Constant, Linear Trend
Lag Length: 0 (Fixed)
t-Statistic
Augmented Dickey-Fuller test statistic
-9.833661
Test critical values:
1% level
-4.050509
5% level
-3.454471
10% level
-3.152909
*MacKinnon (1996) one-sided p-values.
Augmented Dickey-Fuller Test Equation
Dependent Variable: D(Y,2)
Method: Least Squares
Sample (adjusted): 1947Q3 1972Q4
Included observations: 102 after adjustments
Variable
Coefficient
Std. Error
t-Statistic
D(Y(-1))
-1.011126
0.102823
-9.833661
C
4.139859
3.147858
1.315135
@TREND(1947Q1)
0.251048
0.056406
4.450762
R-squared
0.494817 Mean dependent var
Adjusted R-squared
0.484612 S.D. dependent var
S.E. of regression
15.33975 Akaike info criterion
Sum squared resid
23295.48 Schwarz criterion
Log likelihood
-421.7149 Hannan-Quinn criter.
F-statistic
48.48435 Durbin-Watson stat
Prob(F-statistic)
0.000000

Prob.*
0.0000

Prob.
0.0000
0.1915
0.0000
0.455882
21.36736
8.327742
8.404947
8.359005
1.943602

The computed ADF test-statistic (-9.83366) is less than the critical "tau", thus we reject the Ho. That
means the "Y" becomes stationary at first-differenced.

Since Y is a non-stationary at level, but stationary at first differences then Y I(1).

Null Hypothesis: X has a unit root
Exogenous: Constant, Linear Trend
Lag Length: 2 (Fixed)
Augmented Dickey-Fuller test statistic
Test critical values:
1% level
5% level
10% level
*MacKinnon (1996) one-sided p-values.
Augmented Dickey-Fuller Test Equation

t-Statistic
0.749614
-4.051450
-3.454919
-3.153171

Prob.*
0.9997

Dependent Variable: D(X)

Method: Least Squares
Sample (adjusted): 1947Q4 1972Q4
Included observations: 101 after adjustments
Variable
Coefficient
Std. Error
t-Statistic
X(-1)
0.013559
0.018088
0.749614
D(X(-1))
0.159876
0.114145
1.400633
D(X(-2))
-0.092364
0.113276
-0.815392
C
-7.319615
16.23108
-0.450963
@TREND(1947Q1)
0.016916
0.343385
0.049261
R-squared
0.195896 Mean dependent var
Adjusted R-squared
0.162391 S.D. dependent var
S.E. of regression
18.90265 Akaike info criterion
Sum squared resid
34301.77 Schwarz criterion
Log likelihood
-437.6183 Hannan-Quinn criter.
F-statistic
5.846873 Durbin-Watson stat
Prob(F-statistic)
0.000297

Prob.
0.4553
0.1645
0.4169
0.6530
0.9608
20.51683
20.65390
8.764719
8.894180
8.817128
1.761294

The computed ADF test-statistic (0.7496) is greater than the critical "tau", thus we do not reject the Ho.
That means the "X" is non-stationary at level.
Null Hypothesis: D(X) has a unit root
Exogenous: Constant, Linear Trend
Lag Length: 1 (Fixed)
t-Statistic
Augmented Dickey-Fuller test statistic
-5.859654
Test critical values:
1% level
-4.051450
5% level
-3.454919
10% level
-3.153171
*MacKinnon (1996) one-sided p-values.
Augmented Dickey-Fuller Test Equation
Dependent Variable: D(X,2)
Method: Least Squares
Included observations: 101 after adjustments
Variable
Coefficient
Std. Error
t-Statistic
D(X(-1))
-0.910160
0.155327
-5.859654
D(X(-1),2)
0.083873
0.112453
0.745846
C
4.459000
4.059313
1.098462
@TREND(1947Q1)
0.268397
0.073085
3.672403
R-squared
0.367076 Mean dependent var
Adjusted R-squared
0.347501 S.D. dependent var
S.E. of regression
18.85992 Akaike info criterion
Sum squared resid
34502.55 Schwarz criterion
F-statistic
18.75229 Durbin-Watson stat
Prob(F-statistic)
0.000000

Prob.*
0.0000

Prob.
0.0000
0.4576
0.2747
0.0004
0.904950
23.34800
8.750753
8.854322
1.751929

The computed ADF test-statistic (-5.85965) is less than the critical "tau", thus we reject the Ho. That
means the "X" becomes stationary at first-differenced.

Since X is a non-stationary at level, but stationary at first differences then X I(1).

Null Hypothesis: UHAT has a unit root
Exogenous: None
Lag Length: 0 (Fixed)
t-Statistic

Prob.*

Augmented Dickey-Fuller test statistic

-5.268299
Test critical values:
1% level
-2.587607
5% level
-1.943974
10% level
-1.614676
*MacKinnon (1996) one-sided p-values.
Augmented Dickey-Fuller Test Equation
Dependent Variable: D(UHAT)
Method: Least Squares
Sample (adjusted): 1947Q2 1972Q4
Included observations: 103 after adjustments
Variable
Coefficient
Std. Error
t-Statistic
UHAT(-1)
-0.433296
0.082246
-5.268299
R-squared
0.213757 Mean dependent var
Adjusted R-squared
0.213757 S.D. dependent var
S.E. of regression
14.90456 Akaike info criterion
Sum squared resid
22658.89 Schwarz criterion
Log likelihood
-423.9200 Hannan-Quinn criter.
Durbin-Watson stat
1.943467

0.0000

Prob.
0.0000
-0.227816
16.80896
8.250873
8.276453
8.261234

The computed ADF test-statistic (-5.268299) is less than the critical "tau", thus we reject the Ho. That
means the "UHAT" is stationary at level.

If both sets of data are I(1) (non-stationary), then if the regression produces an I(0) error
term, the equation is said to be cointegrated.

QUESTION 2
The following table contains an annual time series data on the demand for cigarettes in Turkey
and its determinants for the years 1946 - 1994. The definitions of the variables are as follows;
Q
Y
P

Logarithm of annual per capita cigarette consumption

Logarithm of per capita personal disposable income
Logarithm of real price of cigarettes

There has been considerable debate about the impact that government restrictions have had on
the demand for tobacco. In Australia all tobacco advertising in the electronic media was banned
after 1976. Further bans on advertising in the print media and on billboard advertising were
initiated in 1987.
(a) Based on all the given variables and information regarding tobacco advertising bans,
estimate a model that will enable you to test the effectiveness of the tobacco advertising
bans in the electronic media after 1976, and in the print media and on billboard in 1987.
Dependent Variable: Q
Method: Least Squares
Sample: 1946 1994
Included observations: 49
Variable

Coefficient

Std. Error

t-Statistic

Prob.

C
Y
P
D1
D2
D1Y
D2Y
D1P
D2P

-0.182390
-1.932014
2.385953
12.16804
-22.25672
-0.783607
1.151386
-1.959297
3.813171

R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)

0.693288
0.631946
0.505873
10.23631
-31.16395
11.30195
0.000000

3.086080
0.872523
0.438545
7.555939
8.281885
1.534964
1.645440
1.091236
1.359541

-0.059101
-2.214283
5.440609
1.610394
-2.687397
-0.510505
0.699744
-1.795485
2.804748

Mean dependent var

S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat

0.9532
0.0326
0.0000
0.1152
0.0104
0.6125
0.4881
0.0801
0.0077
7.598282
0.833846
1.639345
1.986822
1.771177
1.722676

(b) Test the null hypothesis that there is no difference between marginal effect of Q with
respect to Y and marginal effect of Q with respect to P.
Q
1 5 D 1 6 D2
Y
Q
2 7 D 1 8 D2
P
For the period 1946 1976; D1 = D2 = 0; we need to test H0: 1 = 2
Wald Test:
Equation: Untitled
Test Statistic
t-statistic
F-statistic
Chi-square

Value

df

Probability

-4.739684
22.46460
22.46460

40
(1, 40)
1

0.0000
0.0000
0.0000

Value

Std. Err.

-4.317966

0.911024

Null Hypothesis: C(2)=C(3)

Null Hypothesis Summary:
Normalized Restriction (= 0)
C(2) - C(3)
Restrictions are linear in coefficients.

Since Prob(F-stat) = 0.0000 < = 0.05, Reject H0,

For the period 1977 1986; D1 = 1, D2 = 0; we need to test H0: 1 + 5 = 2 + 7

Wald Test:
Equation: Untitled
Test Statistic

Value

df

t-statistic
-2.907776
40
F-statistic
8.455163
(1, 40)
Chi-square
8.455163
1
Null Hypothesis: C(2)+C(6)=C(3)+C(8)
Null Hypothesis Summary:
Normalized Restriction (= 0)
C(2) - C(3) + C(6) - C(8)

Probability
0.0059
0.0059
0.0036

Value

Std. Err.

-3.142276

1.080646

Restrictions are linear in coefficients.

Since Prob(F-stat) = 0.0059 < = 0.05, Reject H0,

For the period 1987 1994; D1 = 1, D2 = 1; we need to test H0: 1 + 5 + 6 = 2 + 7 + 8
Wald Test:
Equation: Untitled
Test Statistic

Value

df

t-statistic
-3.700887
40
F-statistic
13.69657
(1, 40)
Chi-square
13.69657
1
Null Hypothesis: C(2)+C(6)+C(7)=C(3)+C(8)+C(9)
Null Hypothesis Summary:
Normalized Restriction (= 0)
C(2) - C(3) + C(6) + C(7) - C(8) C(9)

Probability
0.0006
0.0006
0.0002

Value

Std. Err.

-5.804061

1.568289

Restrictions are linear in coefficients.

Since Prob(F-stat) = 0.0006 < = 0.05, Reject H0,

(c) Test the impact of these government restrictions i.e. whether they are successful or
otherwise in reducing cigarette consumption?
We need to test H0: 3 = 4 = 5 = 6 = 7 = 8 = 0
H1: at least one of the 0
Wald Test:
Equation: Untitled

Test Statistic

Value

df

F-statistic
4.254457
(6, 40)
Chi-square
25.52674
6
Null Hypothesis: C(4)=C(5)=C(6)=C(7)=C(8)=C(9)=0
Null Hypothesis Summary:
Normalized Restriction (= 0)
C(4)
C(5)
C(6)
C(7)
C(8)
C(9)

Probability
0.0021
0.0003

Value

Std. Err.

12.16804
-22.25672
-0.783607
1.151386
-1.959297
3.813171

7.555939
8.281885
1.534964
1.645440
1.091236
1.359541

Restrictions are linear in coefficients.

Since Prob(F-stat) = 0.0021 < = 0.05, Reject H0,

END