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Maswali Ya Applied Econometric Tutorial Set 1

This document provides a review of econometrics concepts and questions related to applied econometrics. It includes definitions of key econometrics terms, examples of distinguishing mathematical and econometric models, instructions to analyze sample data using linear regression models, assumptions of classical linear regression models, and hypotheses testing examples.

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105 views4 pages

Maswali Ya Applied Econometric Tutorial Set 1

This document provides a review of econometrics concepts and questions related to applied econometrics. It includes definitions of key econometrics terms, examples of distinguishing mathematical and econometric models, instructions to analyze sample data using linear regression models, assumptions of classical linear regression models, and hypotheses testing examples.

Uploaded by

V2c Fungameza
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ECU 08608: APPLIED ECONOMETRICS

REVIEW QUESTIONS

1. Define the following terminologies as they are used in econometrics

i. Econometrics
ii. Cross-sectional data
iii. Pooled Cross-sectional data set
iv. Time series data
v. Panel data
vi. Dummy variables
vii. Parameters
viii. Statistic
ix. Economic model
x. Econometric Model
xi. Empirical Analysis
2. With examples differentiate between mathematical and econometric model
3. Use the data in BWGHT.data to answer this question
i. How many women are in the sample, and how many report smoking during
pregnancy?
ii. What is the average number of cigarettes smoked per day? Is the average a good
measure of the typical woman in this case?
iii. Among women who smoke during pregnancy, what is the average number of
cigarettes smoked per day? How does this compare with your answer from part
(ii), and why?
iv. Find the average of fatheeduc in the sample. Why are only 1192 observations
used to compute this average?
v. Report the average family income and its standard deviation in dollars.

4. Explain briefly the CLRM assumptions

5. Define the term Homoskedasticity

6. State the Gauss-Markov theorem

7. Consider the following simple linear regression model

Y i=β o + β 1 X i+ ε i,

a) Explain each term included in the model above


b) The table below shows data about annual salaries (Thousands euros) and tenure (years)
for 8 individuals.

Salary 40 22 19 30 62 32 45 51

Tenure 15 3 1 8 39 13 17 24

i. Plot the scatter diagram on the data


ii. Comment on the diagram in (i)
iii. Compute the correlation coefficient between salary and tenure and interpret the
results
iv. Regress the salary on tenure and interpret the regression coefficients
v. Predict the value of salary of an individual working for 27 years
vi. Compute the standard errors of regression coefficients
vii. Compute the Covariance between the constant and slope coefficients
viii. Compute and interpret the coefficient of determination
c) In determining the relationship between the age of managing directors, X and their
Systolic Blood Pressure (SBP), Y, a sample of eight managing directors were used. After
recording their age and SBP, a computer gives the following outputs.
❑ ❑ ❑ ❑ ❑
n= 8, ∑ X =544, ∑ X =37028, ∑ Y =552, ∑ Y =38132, ∑ XY =¿ ¿37560
2 2

❑ ❑ ❑ ❑ ❑
i.Compute the correlation coefficient between the age of managing directors an7d
their SBP
ii. Interpret the value and the sign of the correlation coefficient
iii. Find the regression line of Systolic Blood Pressure (SBP) on the age
iv. Interpret the values of regression coefficients
v. Predict the SBP of the managing director aged 55 years.
vi. Compute the standard error of slope coefficient
vii. Compute and interpret the coefficient of determination
d) Suppose ten companies had the following advertising expenditures and sales figures of a
particular product

Advertising
Expenditure(Tsh) 10 12 18 15 8 17 20 15 11 19

Sales(Tsh) 22 25 26 30 23 27 32 27 25 29
a) Calculate Pearson’s product-moment coefficient correlation between sales and
advertising expenditure
b) Fit the regression line of sales on advertising expenditure
c) Interpret the results of the analysis in (a) and (b) above.
d) Estimate sales when advertising expenditure is 100 Tshs.
e) The relationship between nominal exchange rate and relative was assessed by using
annual observations from 1985 to 2005. The following regression results were obtained.
Y = exchange rate of Tanzania Tshs to the Kenyan shillings and X=Rate of the Kenya
consumer price index, that is X represents the relative price in the two countries.
Y^ i=−0.912+ 2.250 X i, r 2=0.44 , standard error of slope coefficient = 0.096
i. Interpret this regression
ii. Interpret r 2
iii. Does the positive value of X i make economic sense? What is the underlying
economic theory?
iv. Suppose we were to redefine X as the ratio of Tanzania CPI to the Kenya CPI
would it change the sign of X? why?
f) Consider Y = Xβ+ Ԑ , X is T ×k and β is k ×1 , the familiar standard linear regression
model in T observations and k < T explanatory variables with X fixed,
E ( Ԑ )=0 , E ( Ԑ Ԑ ' )=σ 2 I T , Ԑ N ( 0 , σ 2 I T , )

You are also given the following information from 20 observations,

( ) ()
1 0 1 1
' ' '
X X= 0 2 1 , Y Y =40 , X Y= −2
1 1 2 −1

i. Show that the estimated parameters are unbiased estimators of the true population
parameters
ii. Estimate the parameters of the model and fit the regression line.
iii. Compute the variance of the estimated parameters
iv. Use the unified testing procedure:

H 0 : Rβ=r

H 1 : Rβ=r

to test the following hypotheses:

(i) H 0 : β 3=0 against H 1 : β 3 ≠0


(ii) H 0 : β 2=β 3=−1 against H 1 : β 2 ≠ β 3 ≠−1
(iii)
H 0 : β 1 ¿ β 2=−β 3=1 against β 1 ≠ β2 ≠−β 3 ≠ 1
(iv) H 0 : β 2=β 3 against H 1 : β2 ≠ β3

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