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Problem Set 2

This document contains instructions for an econometrics problem set due on February 8th, 2021. It provides the names of the instructors and asks students to provide their name and section number. The problem set contains 4 questions,

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48 views

Problem Set 2

This document contains instructions for an econometrics problem set due on February 8th, 2021. It provides the names of the instructors and asks students to provide their name and section number. The problem set contains 4 questions,

Uploaded by

Mahnoor
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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BSc-III

Econometrics I (ECO 204)


Problem Set 2
Spring 2021
Azam Chaudhry Aimal Tanvir
Due before class on Monday, 8th February, 2021

Name: ______________ Section: _______

Question 1:
Suppose a researcher is interested in estimating the linear regression model 𝒀𝒊 = 𝜷𝟎 + 𝜷𝟏 𝑿𝒊 + 𝝁𝒊 and
in a sample of 101 observations, the following descriptive statistics are generated:

𝑥̅ = 60, 𝑦̅ = 40, ∑𝑛𝑖=1(𝑥𝑖 − ̅̅̅


𝑥)2 =2500, ∑𝑛𝑖=1(𝑦𝑖 − ̅̅̅
𝑦)2 =3600

∑𝑛𝑖=1(𝑥𝑖 − ̅̅̅
𝑥)(𝑦𝑖 − ̅̅̅
𝑦) = 1500, 𝑅 2 = 0.2

a) What is 𝜎̂𝑥2 ?
̂1 ?
b) What is the OLS estimate of 𝛽
̂0 ?
c) What is the OLS estimate of 𝛽
d) What is the SSE for this model?

Question 2:
The following table contains the GAT scores and the GPA (grade point average) for eight college
students. Grade point average is based on a four-point scale and has been rounded to one digit after
the decimal.
Student GPA GAT
1 2.8 21
2 3.4 24
3 3.0 26
4 3.5 27
5 3.6 29
6 3.0 25
7 2.7 25
8 3.7 30
a. Estimate the relationship between GPA and GAT using OLS; that is, obtain the intercept and
slope estimates in the equation:
̂𝟎 + 𝜷
̂ = 𝜷
𝑮𝑷𝑨 ̂𝟏 𝑮𝑨𝑻
Comment on the direction of the relationship. Does the intercept have a useful interpretation here?
Explain. How much higher is the GPA predicted to be if the GAT score is increased by five points?

b. Compute the fitted values and residuals for each observation, and verify that the residuals
(approximately) sum to zero.
c. What is the predicted value of GPA when GAT = 20?

Question 3:
The relationship between Pakistan’s GDP and FDI is estimated using the following models:
̂ = 𝟐𝟒. 𝟑𝟔𝟒𝟏𝟕 + 𝟎. 𝟐𝟎𝟗𝟔𝟖𝟕 𝑭𝑫𝑰𝒊
𝑮𝑫𝑷 (𝑬𝒒𝒖𝒂𝒕𝒊𝒐𝒏 𝟏)
̂
𝒍𝒐𝒈(𝑮𝑫𝑷) = 𝟐𝟒. 𝟑𝟔𝟒𝟏𝟕 + 𝟎. 𝟐𝟎𝟗𝟔𝟖𝟕 𝑭𝑫𝑰𝒊 (𝑬𝒒𝒖𝒂𝒕𝒊𝒐𝒏 𝟐)
̂
𝒍𝒐𝒈(𝑮𝑫𝑷) = 𝟐𝟒. 𝟑𝟔𝟒𝟏𝟕 + 𝟎. 𝟐𝟎𝟗𝟔𝟖𝟕 𝒍𝒐𝒈 (𝑭𝑫𝑰𝒊 ) (𝑬𝒒𝒖𝒂𝒕𝒊𝒐𝒏 𝟑)
̂ = 𝟐𝟒. 𝟑𝟔𝟒𝟏𝟕 + 𝟎. 𝟐𝟎𝟗𝟔𝟖𝟕 𝒍𝒐𝒈 (𝑭𝑫𝑰𝒊 )
𝑮𝑫𝑷 (𝑬𝒒𝒖𝒂𝒕𝒊𝒐𝒏 𝟒)
Where:
GDP = Gross Domestic Product measured in dollars.
FDI = Foreign Direct Investment measured in dollars.

a) Provide interpretations for all of the slope coefficients in the equations above.
b) Determine the predicted value of GDP when FDI=30 for all of the equations above.

Question 4:
Use the following regression results to answer the questions below:

Salary = 473.212 + 09.402 (sickdays)


n=141, R 2 = 0.0421
Where:
Salary = Annual salary measured in thousands of dollars
Sickdays= Total number of sick days taken by the i-th employee during the year

a. Provide an interpretation of the regression coefficient on sickdays.


b. Interpret the R-squared.

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