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    Econometrics For ECO 2022 Tutorial 6

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    Henk
    The document discusses exercises related to econometrics concepts. It covers testing hypotheses about coefficients in linear regression models, including individual coefficients and joint hypotheses. It also discusses assessing whether a variable has a continuous distribution and consequences for hypothesis testing if assumptions are violated.

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    Econometrics For ECO 2022 Tutorial 6

    Uploaded by

    Henk
    40 views7 pages
    The document discusses exercises related to econometrics concepts. It covers testing hypotheses about coefficients in linear regression models, including individual coefficients and joint hypotheses. It also discusses assessing whether a variable has a continuous distribution and consequences for hypothesis testing if assumptions are violated.

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    Econometrics_for_ECO_2022_Tutorial_6

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    The document discusses exercises related to econometrics concepts. It covers testing hypotheses about coefficients in linear regression models, including individual coefficients and joint hypotheses. It also discusses assessing whether a variable has a continuous distribution and consequences for hypothesis testing if assumptions are violated.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    40 views7 pages

    Econometrics For ECO 2022 Tutorial 6

    Uploaded by

    Henk
    The document discusses exercises related to econometrics concepts. It covers testing hypotheses about coefficients in linear regression models, including individual coefficients and joint hypotheses. It also discusses assessing whether a variable has a continuous distribution and consequences for hypothesis testing if assumptions are violated.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 7

    Tutorial 6

    Econometrics for ECO

    In-class exercises, 13 October 2022

    1. The variable rdintens is expenditures on research and development (R&D) as a percentage


    of sales. Sales are measured in millions of dollars. The variable profmarg is profits as a
    percentage of sales.
    Using the data in rdchem.RData for 32 firms in the chemical industry, the following
    equation is estimated:

    (a) Interpret the coefficient on log(sales). In particular, if sales increases by 10%, what
    is the estimated percentage point change in rdintens? Is this an economically large
    effect?
    (b) Test the hypothesis that R&D intensity does not change with sales against the
    alternative that it does increase with sales. Do the test at the 5% and 10% levels.
    (c) Interpret the coefficient on profmarg. Is it economically large?
    (d) Does profmarg have a statistically significant effect on rdintens?
    (e) Test the hypothesis that lsales and profmarg have jointly no effect on rdintens against
    the alternative that they do at the 5% level.

    1
    2. Suppose we would like to test whether assessed housing price is a rational valuation.
    (a) In the simple regression model

    price = β0 + β1 assess + u

    the assessment is rational if β1 = 1 and β0 = 0. The estimated equation is

    where SSR is equal to 165,644.5.


    First, test the hypothesis that H0 : β0 = 0 against the two-sided alternative. Then,
    test H0 : β1 = 1 against the two-sided alternative. What do you conclude?
    (b) To test the joint hypothesis that β0 = 0 and β1 = 1, we need the SSR in the restricted
    model. This amounts to computing
    n
    X
    (pricei − assessi )2
    i=1

    where n = 88, since the residuals in the restricted model are just pricei −assessi . (No
    estimation is needed for the restricted model because both parameters are specified
    under H0 .) This turns out to yield SSR = 209, 449.0. Carry out the F test for the
    joint hypothesis.

    2
    (c) Now, test H0 : β2 = 0, β3 = 0, β4 = 0 in the model

    price = β0 + β1 assess + β2 lotsize + β3 sqrf t + β4 bdrms + u

    The R-squared from estimating this model using the same 88 houses is 0.829.

    Hint: When both unrestricted and restricted models involve the same dependent
    variable, the R-squared version of the F-statistic can also be used:

    SSRr − SSRur n − k − 1 R2 − R2 n − k − 1
    F = · = ur 2 r ·
    SSRur q 1 − Rur q

    (d) If the variance of price changes with assess, lotsize, sqrf t, or bdrms, what can you
    say about the F test from part (c)?
    EXTRA
    3. The following histogram was created using the variable educ in the data file HTV, where
    education (educ) for an individual is measured in years of education.

    (a) How many different values are taken on by educ in the sample? Does educ have
    a continuous distribution? Does the distribution of educ appear anything close to
    normal?
    (b) Which of the CLM assumptions seems clearly violated in the model

    educ = β0 + β1 motheduc + β2 f atheduc + β3 abil + β4 abil2 + u

    What consequences does this have for using the usual t-statistic to test H0 : β1 = 0?
    And for using the F -statistic for test the overall significance of the regression?

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