178.

280 Assignment 2 (Worth 10%)

Please remember to show all your workings and attach any relevant computer outputs

Question 1 The following questions required the use of the E views dataset “sleep75”.

i) What is the predicted SLEEP equation?

ii) Consider another variable, “FEMALE” which is a dummy for being female. If FEMALE is used in the
place of MALE in the above regression in past (i), give the new estimation results. (i.e; What will
the new predicted SLEEP equation be?)

iii) Find the 95% confidence interval for the effect of EDUC on SLEEP. Use this interval estimate to
check if EDUC is statistically significant at the 5% significance level.

iv) Based on the above regression information in the table, predict the sleep in hours a day for a 25
years-old woman with 13 years of education who works part time (20 hours a week).
v) Let be the predicted (fitted) SLEEP from the above regression information in the table.
Compute the sample correlation between and SLEEP.

vi) Test whether the explanatory variables are jointly significant at the 0.01 level.

vii)Is there evidence that the coefficient of total weekly minutes spent working is less than zero and
significant at 0.01 level?

Question 2

Suppose we want to estimate the effects of alcohol consumption ( on college grade average
. In addition to collecting information on grade point averages and alcohol usage, we also
obtain attendance information (say, percentage of lectures attended called . A standardised
test score (say, ) and high school GPA are also available.

i) Should we include along with as explanatory variables in a multiple regression

model? ii) Should and be included as explanatory variables? Explain.

Question 3

We have annual observations on housing investment and a housing price index in New Zealand from
1947 through 2010. Let denote real per capita housing investment (in thousands of dollars) and
denote a housing price index (equal to 1 in 1982). A simple regression in constant elasticity
form, which can be thought of as a supply equation for housing stock gives

(0.023) (0.334)

We know that both and have upward trends. Then we run another model including a
linear trend.
(b) = =0.369

(0.136) (0.679) (0.0035)

(Standard errors are given in the parenthesis).

i) Test if is significant at 5% significance level in both (a) and (b).

ii)Refer to the regression models above; please explain why the coefficient and significance of
changes from model (a) to (b). Please specify and explain what is wrong with the first (a)
model?

Question 4 Use the data in MINWAGE.RAW for this question. In particular, use the employment and
wage series for sector 232 (Men’s and Boy’s Furnishings). The variable is the monthly
growth (change in logs) in the average wage in sector 232, is the growth in employment in
sector 232, is the growth in the federal minimum wage, and is the growth in the
(urban) Consumer Price Index.

i) Run the regression on , . Do the sign and magnitude of

make sense to you? Explain. Is statistically significant?

Step-by-step solution:

Step 1 of 4

(i)

Estimate the regression of the variable on to get the result as:

The sign of the coefficients of and is positive. It indicates that when the minimum wage increase by
1% point, on average ,the hourly wage for sector 232 increases by 15.05% points and when the
inflation rate increases by 1% point, the hourly wage on an average increases by 24.35%

The p-value of the coefficient of is 0.0000 which is less than the critical p-value of 0.05 at 5% level of
significance, indicating that the variable is significant in explaining

ii) Add lags 1 through 12 of to the equation in part i). Do you think it is necessary to
include these lags to estimate the long-run effect of minimum wage growth on wage growth in sector
232? Explain.

iii) Run the regression on , . Does minimum wage growth appear to

have a contemporaneous effect on ?

iv) Add lags 1 through 12 to the employment growth equation. Does growth in the minimum
wage have a statistically significant effect on employment growth, either in the short run or long run?
Explain.