8/2/2019 Practical Lab 2

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Practical lab 2

Problem 1: Review of multiple regressionThe data set in file CH3_BT5 consists of variables: q (demand for pork, 10kg/person), Y (Income per capital

USD) and P (price of pork)1. Estimate the demand function for pork (Using logarithm form function). What is the elasticity ofdemand w.r.

income and price. Explain the meaning of estimated coefficients.2. Test the hypothesis that elasticity w.r.t price is -13. Test the hypothesis that elasticity w.r.t price is -1 and w.r.t income is 1

4. When both price and income increase 1%, how much the demand for pork change.

5. Test that if both price and income increase 1%, the demand for pork will not change.

6. What are the confidence intervals for elasticity of demand for pork

Problem 2: Regression on Dummy variablesData in file CH4BT1 contains the information on consumption (CS) and Income (Y) from 1929 to 1970 in US.There are two events happening within this period: World war II (41-46) and Vietnam war (60-70). D 1 is the

dummy (equals to 1 in the period 41-46), D2 is dummy (equals to 1 in the period 60-70)

1. Produce scatter plots of CS on Y for three period and for the whole data and compare2. Estimate consumption function for the whole period and for the period affected by WWII

3. Estimate model: CS= b1+b2Y+b3D1+b4(D1Y)+u and explain the results

4. Estimate model: lnCS= b1+b2 lnY+b3D1+u and explain the results5. Estimate model: CS= b1+b2Y+b3D1+ b4D2+u

- Did Vietnam war have effect on consumption

- Did World war II have effect on consumption

- Did both wars have effect on consumption

Problem 3: MulticollinearityData set CH5BT4 includes variables Y (family consumption), X2 ( Income) and X3 (transferable assets)

1. Compute the correlation amongst variables and comment2. Estimate the linear model of Y on X2 and X3

3. Based on the results in 2, comment on the multicollinearity in model in 24. Estimate model between independent variables and make a test for multicollinearity

5. Suggest a remedial measure, Which variable we should drop out?

Problem 4: HeteroscedasticityWorkfile CH6BT3 contains two variables on debt (D88) and GDP (Y88), both variables are recorded by USD and

converted to year of 1988. Data is for 73 developing countries by World Development Report. Use the data set, dothe followings:

1. Estimate the model of D88 on Y88 and explain the results. Record residuals with name "e" and fitted values

with name "fv". Produce scatter plot of squares of residuals on Y88.2. Conduct Park test to detect if model has heteroscedasticity3. Conduct Gleijer test to detect if model has heteroscedasticity

4. Conduct White test to detect if model has heteroscedasticity

5. Using the log form model to reestimate the model and do the test for heteroscedasticity for the new model6. Assume that in the first model, the variance of disturbances is proportional to squares of independent variable.

Suggest the method to remedy the heteroscedasticity and estimate the new model

7. Similar to question 6 but now assume that the variance of disturbances is proportional to squares of fittedvalues.