Econ6034

Econometrics and Business Statistics

Group Assignment (2023-s1)

Total Marks 84 – Weighting: 30%

The assignment relates to the following learning outcomes:

• Apply basic statistical techniques to problems in economics and business
• Use econometric tools to model, estimate and forecast economic data
• Engage into further studies in econometrics
• Demonstrate the ability to work effectively in a group

Submission:
• This is a group assignment.
• Groups may consist of up to four students.
• You only need to submit ONE electronic copy of your assignment for your
group.
• Turnitin allows you to submit only once. It is therefore crucial that you
submit the final version.
• Submit your assignment via Turnitin by 11:55 PM on Monday 29 May 2023
(week 13 of the semester)
• The submission link will be available on iLearn towards the end of week 12.
• No extensions will be granted except for cases in which an application for
Special Consideration is made and approved.
• There will be a 5% penalty (of the total possible mark) will be applied each
day a written assessment is not submitted, up until the 7th day (including
weekends). After the 7th day, a grade of ‘0’ will be awarded even if the
assessment is submitted.
• Type your assignment in MSWORD (font size 11-12) and save it
as a pdf and submit your PDF document. No other format will be
accepted.
• Use Microsoft word equation editor to type your formulae or equation. The
Following links may be helpful in getting started with the equation editor.
• https://support.microsoft.com/en-us/office/write-an-equation-or-formula-1d01cabc-

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 ceb1-458d-bc70-7f9737722702
• https://www.officetooltips.com/word_2016/tips/working_with_microsoft_equation.h
tml
• You CANNOT submit the assignment in Handwritten or scanned formats.
• Your answers must be preceded with the assignment question.
• Unless it requested in the question otherwise do not attach Gretl output.
• If required, charts and output from Gretl may be copied as an image into the
document.
• Marks will be deducted for poor quality presentation.
• No appendices in your assignment.
• You can ONLY submit ONCE to Turnitin.
• Include the following table on the FIRST PAGE of your group’s submission
and fill the information.

Group Student Number Student Name

Member
1
2
3
4

Plagiarism:
• The copying of another student's answer or textbooks, or part thereof, is
clearly regarded as plagiarism.
• Students who have plagiarised will be awarded a mark of zero, will not be
permitted to resubmit, and may be reported to the University Disciplinary
Committee for further action.
• Students should be aware of the University’s Academic Integrity Policy and
the Student Code of Conduct:
https://ilearn.mq.edu.au/mod/page/view.php?id=7149085

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 Assignment Questions

Question 1 [52 marks]

This study uses the data from Kuiper (2008) who collects data for 804 General Motors
(GM) used cars from the Kelly blue book. All cars in this data set were less than one year
old when priced and considered to be in excellent condition. The sample size for this
assignment is 700 observations drawn at random from the Kuiper study and stored in the
file Kuiper_sample700.csv in iLearn.

The file includes data on the following variables:

• Price: suggested retail price of the used 2005 GM car in excellent condition and less than one
year old (US dollars)
• Mileage: number of miles the car has been driven
• Make: manufacturer of the car such as Buick, Cadillac, Chevrolet, Pontiac, Saab, Saturn
• Model: specific models for each car manufacturer such as Ion, Vibe, Cavalier
• Trim (of car): specific type of car model such as SE Sedan 4D, Quad Coupe 2DType: body type such
as sedan, coupe, hatchback, convertible, wagon
• Cylinder: number of cylinders in the engine
• Liter: a more specific measure of engine size
• Doors: number of doors
• Cruise: indicator variable representing whether the car has cruise control (1 = cruise)
• Sound: indicator variable representing whether the car has upgraded speakers (1 = upgraded)
• Leather: indicator variable representing whether the car has leather seats (1 = leather

(a) Estimate the simple regression model,

price = 𝛽! + 𝛽" 𝑚𝑖𝑙𝑎𝑔𝑒 + 𝑢 (1)
and report your results in equation form along with the number of observations and
R2. [2 marks]

(b) Interpret the estimated coefficient on mileage. [2 marks]

(c) How does price change if two cars are identical except one has 25000 more miles?
[2 marks]

(d) Divide the sample by the variable cylinder which is the number of cylinders in the
engine – 4, 6 or 8. Re-estimate the simple regression model in i above for each of the
subsamples. Report your results for each subsample in equation form along with the
number of observations and R2. [4 marks]

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(e) For each subsample, interpret the estimated coefficient on mileage. [4 marks]

(f) For each subsample, how does price change if two cars are identical except one has
25000 more miles? [4 marks]

(g) Now estimate the following regression model and report the summary results in an
equation form. (A summary results should include fitted equation with coefficients,
standard error, t-statistic, p-value, sample size, F-statistic and R-squared). [4 marks]

𝑝𝑟𝑖𝑐𝑒 = 𝛽! + 𝛽" 𝑚𝑖𝑙𝑒𝑎𝑔𝑒 + 𝛽# 𝑙𝑖𝑡𝑒𝑟 + 𝛽$ 𝑑𝑜𝑜𝑟𝑠 + 𝑢 (2)

(Gretl: ModelàOrdinary Least Squaresàand then select the “price” as the
dependent variable and “mileage”, “liter” and “doors” as RegressorsàOK).

(h) Comment on the individual significance of the coefficients mileage and liter. Use a 5%
significance level and the critical value method (No need to carry out the steps in
hypothesis tests) [4 marks]

(i) Construct an estimate of the price elasticity with respect to mileage calculated at the
mean of mileage and the mean of price. Interpret this estimate. [4 marks]

(j) Now, estimate the following regression model, present the summary results in an
equation form and answer the following questions. (A summary results should include
fitted equation with coefficients, standard error, t-statistic, p-value, sample size, F-statistic
and R-squared). [4 marks]

𝑙𝑜𝑔(𝑝𝑟𝑖𝑐𝑒) = 𝛽! + 𝛽" 𝑙𝑜𝑔(𝑚𝑖𝑙𝑒𝑎𝑔𝑒) + 𝛽# 𝑙𝑖𝑡𝑒𝑟 + 𝛽$ 𝑑𝑜𝑜𝑟𝑠 + 𝑢 (3)

(k) Interpret the estimated coefficient on log(mileage) in model (3). [4 marks]

(l) Interpret the estimated coefficients on liter and doors in model (3) and discuss how
they compare with those obtained in the linear model (2) in (g). [4 marks]

(m) Use the F test to test the overall significance of the model (3) at the 5% significance
level. Clearly state the hypotheses, test statistics and its distribution when null
hypothesis is true, critical value and your conclusion. [4 marks]

(n) Compare models (2) and (3). Which model would you choose? And why? [6 marks]

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Question 2 [32 marks]

A researcher wants to analyse the relationship between the three-month T-bill rate,
tb3, the annual inflation rate, inf based on the consumer price index, and the federal
budget deficit, def as a percentage of GDP and develops the following model. The
data is stored under the file name is tb3.gdt

𝑡𝑏3% = 𝛼! + 𝛼" 𝑖𝑛𝑓% + 𝛼# 𝑑𝑒𝑓% + 𝜖%

(a) Use Gretl to obtain a line plot among these three variables (one graph) and comment
on the plot. (Hint: to make the graph in Gretl: highlight all three variablesàright
clickàtime series plotàon a single graphà OK.) [4 marks]

(b) Obtain sample correlation coefficient between these variables and comment on the
strength of the relationships? (Hint: to obtain correlation in Gretl: à: highlight all three
variablesàright clickàcorrelation matrixà Ok.) [4 marks]

(c) Estimate the above regression model and provide the Gretl output. (Hint:
Modelàordinary least squaresà select the appropriate variables to the boxesàOk).
[4 marks]

(d) Interpret the coefficients 𝛼" and 𝛼# . Does the sign of the coefficients agree with your
expectations? Explain. [4 marks]

(e) Provide and interpret the coefficient of determination, 𝑅# . [4 marks]

(f) Plot the residuals of the model and comment on any pattern. (Gretl: in your regression
output window, select the menu GraphàResidual plotàAgainst Timeàok.) [2 marks]

(g) Add a one lag of inf and def to the equation in part (a) and re-estimate your model
and report the result. Are the coefficients for the two lag variables individually
significant at the 5% level? In Gretl: Modelàordinary least squaresàA dialog box will
appear. Choose the “tb3” to the dependent variables box and “inf” and “def” as regressors.
From the left bottom corner selectàlagsàadd 1 lag for “inf” and “def” and then clickàok.)
[4 marks]

(h) Conduct the second order autocorrelation test for the model in part (c) at the 5%
significance level. Attach your Gretl results. Clearly states all steps in your test; Null
and alternative hypotheses, the auxiliary regression and the test statistic, critical
value, your decision and the conclusion. (Gretl: TestsàAutocorrelationàMake lags
order for test =2àOk.) [4 marks].

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(i) Re-estimate your model with Robust standard errors and provide your output.
Compare your results with the output in part (c). Comment. (ModelàOLSà Choose
the “tb3” to the dependent variables box and “inf” and “def” as regressors. From the left
bottom corner check the box “Robust standard errors”.) [2 marks]

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ECON6034 – Assignment Rubric

Criteria Zero mark Pass Credit Distinction HD

Not answered Not addressed the Addressed Addressed Addressed the

or answer is issue well but the the issue the issue well issue very well
not relevant to explanation shows moderately with detailed with detailed
the problem. some with good explanation explanation
understanding of explanation without any without any
the question. but some numerical numerical error.
numerical errors.
errors.

Or no Econometric steps Econometric Econometric Econometric steps

understanding are shown but steps are steps are are clearly shown
of the hard to follow. shown but clearly without any errors.
econometric some errors shown but
concepts minor errors.
involved.

The solutions are The solutions The solutions The solutions are
interpreted, are generally are interpreted,
Or Not evaluated, interpreted, consistently evaluated,
attempted or integrated and/or evaluated, interpreted, integrated and/or
entirely or synthesised, to integrated evaluated, synthesised
significantly some degree, to and/or integrated expertly to support
plagiarised support and synthesised and/or and provide
from other provide evidence to support synthesised evidence for a clear
sources. for an overall and provide to support overall
argument/position. evidence for and provide argument/position.
Demonstrates a clear evidence for Able to identify
adequate concept overall a clear contrasting
integration. argument or overall arguments.
position. argument or
position.