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Assignment 1

This document contains 5 questions related to econometric modeling and analysis: 1. Models student GPA as a function of parental income using OLS regression on the given data. Asks to comment on the relationship, find estimates, predicted values, and test hypotheses. 2. Proves that a standardized normal variable can be constructed from sample means and variances. 3. Asks if the parameters of a given model can be estimated using BLUE (Best Linear Unbiased Estimation). 4. Discusses time series models with log GDP as a function of time, and compares predictions and variances between two AR(1) models. 5. Fits a non-linear functional form

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Dong Nguyen
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28 views

Assignment 1

This document contains 5 questions related to econometric modeling and analysis: 1. Models student GPA as a function of parental income using OLS regression on the given data. Asks to comment on the relationship, find estimates, predicted values, and test hypotheses. 2. Proves that a standardized normal variable can be constructed from sample means and variances. 3. Asks if the parameters of a given model can be estimated using BLUE (Best Linear Unbiased Estimation). 4. Discusses time series models with log GDP as a function of time, and compares predictions and variances between two AR(1) models. 5. Fits a non-linear functional form

Uploaded by

Dong Nguyen
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Y (Grade Point Average) X 

(Income of Parents in
1000)
4.0 21.0
3.0 15.0
3.5 15.0
2.0 9.0
3.0 12.0
3.5 18.0
2.5 6.0
2.5 12.0

1. (Use the table above) Suppose the GPA of a student can be explained by the income of the
student,s parents . Write the econometric model .  Draw a scattar diagram. Comment on the
relationship between these two variables.  What is the coefficient of correlation?
a. Find the OLS estimates and estimated equation and draw the line.
b. What will be the estimated GPA if the income of a student,s  parents is 22 thousand dollars?
What will be the estimated GPA if the income a student,s  parents is 0 dollars? 
c. What is the value of R ? Explain. 2

d. Test the hypotheses that  B = 0, , B = 3 and B = -1 2 2 2

e. Draw a confidence interval for the slope coefficient and explain.

2. Suppose U is normally distributed with mean µ and variance σ . Prove that  a new random variable 2

Z=(Ū- µ)/ (σ/n ) has a mean 0 and variance 1.


1/2

3.  Suppose, the following model describes an economic phenomenon,

 Y = γ +    γ  X   + u . Can you estimate the parameters of the model ?( i.e., will the estimators be BLUE?)
i 0 1, i
2
i

4.a. Suppose you have a time series model,

ln y = a + b T +u , where Y = GDP and T is  year such that T =1, T =2, ...T = t … etc.
i i i 1 2 t

Can you estimate it by OLS? How can you interpret b (both mathematically and economically)?

4.b  Consider the following two time series models,

Model 1:     Y = a +b Y + u ,  where  IbI < 1, and also (t= year such that  if t=2 , then t-1= 1 i.e. the
t t-1 t

previous year etc) and

Model 2:     Y = a + Y + u ,   u ,  both the models follow all CLRM assumptions. Find E (Y ) and Variance of
t t-1 t t t

Y in both cases. Do you see any differences? How about covarionces between Y  and Y in model 1.
t t t-1

5. A theorist postulates that the following functional form will provide a good fit to a set of data on Y
and X :

Y= a +b [1/(1-x)].
Sketch the graph of this function when a  and b both are positive. Three sample observations give these
values,

Y X ($)
0 1.2
5 1.5
6 2.0

Fit the foregoing function to these data. If Y denotes the per capita consumption of peanuts and X
denotes income, give a point estimate of  the peanut consumption of a millionaire.

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