EC 331

PS 4

FALL 2011

1. You are given the following equation. Using the attached computer output you are

asked to test the following restrictions. State in each case the null and alternative hypotheses, run the tests and write down your conclusion. ln qpbt = 1 + 2 ln pbt + 3 ln lpt + 4 ln ppt + 5 ln y t + t a) 2 + 3 + 4 + 5 = 0 b) 3 = 4
Included observations: 17 LQB=C(1)+C(2)*LPB+C(3)*LPL+C(4)*LPP+C(5)*LY Coefficient C(1) C(2) C(3) C(4) C(5) R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat 4.672576 -0.826572 0.199681 0.437138 0.101672 0.760880 0.681173 0.070165 0.059077 24.00606 1.150085 Std. Error 1.659577 0.182646 0.212722 0.383686 0.293969 t-Statistic 2.815523 -4.525531 0.938691 1.139312 0.345858 Prob. 0.0156 0.0007 0.3664 0.2768 0.7354 4.719189 0.124263 -2.236007 -1.990944 9.545993 0.001040

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

Included observations: 17 Convergence achieved after 4 iterations LQB=C(1)+C(2)*LPB+C(3)*LPL+C(4)*LPP+(-C(2)-C(3)-C(4))*LY Coefficient C(1) C(2) C(3) C(4) R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat 4.276701 -0.831046 0.215969 0.483510 0.759573 0.704089 0.067596 0.059400 23.95972 1.163265 Std. Error 0.582223 0.175153 0.195562 0.325901 t-Statistic 7.345470 -4.744679 1.104352 1.483612 Prob. 0.0000 0.0004 0.2895 0.1617 4.719189 0.124263 -2.348202 -2.152152 13.69013 0.000256

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

Included observations: 17 LQB=C(1)+C(2)*LPB+C(3)*LNEW+C(4)*LY Coefficient C(1) C(2) C(3) C(4) R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat 4.809598 -0.814136 0.275227 0.141388 0.756872 0.700766 0.067975 0.060068 23.86477 1.076899 Std. Error 1.580295 0.174894 0.125847 0.271563 t-Statistic 3.043480 -4.655016 2.187005 0.520648 Prob. 0.0094 0.0005 0.0476 0.6114 4.719189 0.124263 -2.337032 -2.140982 13.48993 0.000275

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

2. Suppose that you are given the following regression equation EARN = + F FEMALE + EDUC + ( FEMALE EDUC ) + , where household earnings are represented by EARN, FEMALE is a gender dummy and EDUC is years of education. You have 594 observations. In each of the following cases write down the restricted and unrestricted regression equations. What are the respective null hypothesis and how would you set the F-tests? a. Test the equality of slopes and intercepts for males and females. b. Test the equality of intercepts given the same slopes for males and females. c. Test the equality of intercepts allowing for different slopes for males and females.
3. A four-variable regression using quarterly data from 1958 to 1976 inclusive gave an estimated equation:

Y = 2.20 + 0.104 X 2 3.48 X 3 + 0.34 X 4 The explained sum of squares was 109.6 , and the residual sum of squares was 18.48 . When

the equation was re-estimated with three seasonal dummies added to the specification, the explained sum of squares rose to 114.8 . State the null hypothesis, the alternative hypothesis, run the test and comment on your conclusion. (Hint: Use of the definition of Total Sum of Squares might be helpful)

4. Consider the model yt = 1 + 2 x2t + 3 x3t + et . You have 20 observations and after estimating the model you get the following results. Remarks: 1-Write your answers with respect to the letters mentioned below. 2-If you need to do complicated calculations just describe the steps you will go through. 3-For the hypothesis testing include all required information to run the tests. b1 c1 c2 c3 ^ ^ 2 ^ 2 b , cov(b) = ( X ' X ) 1 = c c c , = s , R 2 = r . b = 2 1 1 4 5 6 b3 c7 c8 c9 a) Test the hypothesis that H o : 2 = 3 , H1 : 2 3 b) Test the hypotheses that H o : 1 = 2 = 3 = 1 . c) Predict a value y0 for the dependent variable given the explanatory variable values x0 ' = (a1 , a2 , a3 ) .