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This document provides an assignment for an economics course involving analyzing economic data using regression models in R. The assignment contains two questions: 1. The first question involves fitting linear and log-linear regression models to examine the relationship between house price and square footage. Students are asked to interpret the results, compute elasticities, add regression lines to a scatter plot, and conduct additional analyses including removing an observation. 2. The second question examines models of agricultural supply response using data on sugar cane. Students are asked to estimate and test several models relating the log of area planted to the log of price, accounting for potential autocorrelation in the errors. Tests for autocorrelation and estimates of elasticities using different standard

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Daniel Gagnon
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60 views

Assignment 1

This document provides an assignment for an economics course involving analyzing economic data using regression models in R. The assignment contains two questions: 1. The first question involves fitting linear and log-linear regression models to examine the relationship between house price and square footage. Students are asked to interpret the results, compute elasticities, add regression lines to a scatter plot, and conduct additional analyses including removing an observation. 2. The second question examines models of agricultural supply response using data on sugar cane. Students are asked to estimate and test several models relating the log of area planted to the log of price, accounting for potential autocorrelation in the errors. Tests for autocorrelation and estimates of elasticities using different standard

Uploaded by

Daniel Gagnon
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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CONCORDIA UNIVERSITY

DEPARTMENT OF ECONOMICS
ECON 324, Fall 2019
Assignment 1

Produce a typewritten report that answers the following two questions. Use R for
your estimations and include your R codes in your solution. The assignment has to
be submitted before Monday, October 14 at 11:45.

1 Question 1 [50 mark]


Consider the regression of the price of a house (price) on its surface measured by the square feet
using br.rdata.

1. Produce a scatter plot of the two variables. Discuss your findings. [5 marks]

2. Estimate the linear model,

price = β1 + β2 sqft + e (Model 1),

and add the regression line to your scatter plot. [5 marks]

3. Comment your results. [10 marks]

• Are the coefficients statistically significant at a 5% level?


• How do you interpret the slope and intercept parameters?
• Does the model fit well the data?

4. Compute and interpret the elasticity ξ of the price with respect to the sqft. [5 marks]

5. Re-estimate Model 1 after excluding the last observation from your sample. Is there any
important change in the estimates? [5 marks]

6. Give a 5% confidence interval of the predicted value of price for the observation that you
excluded. Is the true data included in the predicted interval? [5 marks]

7. Using all the observations, estimate this alternate model

ln(price) = β1 + β2 ln(sqft) + e (Model 2),

and add the fitted line to the scatter plot produced in 1.). [5 marks]

8. Compute and interpret the elasticity of the price with respect to the sqft. How does this
elasticity estimate compare to the one you found in 4)? Does Model 2 fit the data better
than Model 1? [10 marks]

1
2 Question 2 [50 marks]
One way of modeling supply response for an agricultural crop is to specify a model in which area
planted (acres) depends on price. When the price of the crop’s output is high, farmers plant more
of that crop than when its price is low. The dataset bangla.rdata contains information on sugar
cane supply. The variable AREA denotes area planted, and PRICE denotes output price.

1. Estimate the following model with no lags [5 marks]

ln(AREAt ) = β1 + β2 ln(PRICEt ) + e.

2. Plot the correlogram for the residuals. What autocorrelations are significantly different from
zero? [5 marks]

3. Perform the DW test for autocorrelated errors using a 5% significance level. [5 marks]

4. Perform the LM test for autocorrelated errors assuming one lag and using a 5% significance
level. [5 marks]

5. Find two 95% confidence intervals for the elasticity of supply, one using least squares standard
errors and one using HAC standard errors. What are the consequences for interval estimation
when serially correlated errors are ignored? [10 marks]

6. Estimate the model under the assumption that the error is an AR(1) process. Is the estimate
for ρ significantly different from zero at a 5% significance level? Compute a 95% confidence
interval for the elasticity of supply. How does it compare with those obtained in part 3)? [10
marks]

7. Estimate an ARDL(1,1) model for sugar supply response. What restrictions are necessary
on the coefficients of this model to make it equivalent to that in 4)? Test these restrictions
using a Wald test. Do the residuals from this model show any evidence of serial correlation?
[10 marks]

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