STOCKHOLM UNIVERSITY

Department of Statistics
P ar Stockhammar
Solutions to the Exam in Econometrics, Part I, 2011-05-23
Problem 1
a) n = 88

y
i
= 25 835.05

x
i
= 16 462.34

y
2
i
= 8 500 750.6

x
2
i
= 3 329 789.6

x
i
y
i
= 5 209 990.7

(x
i
x) (y
i
y) = 377 534.76

(y
i
y)
2
= 917 854.51

(x
i
x)
2
= 250 144.32

u
2
i
= 348 053.43

2
=

(x
i
x) (y
i
y)

(x
i
x)
2
=
377534
250144
= 1.5093

1
= y

2
x =
25835
88
1.5093
16462
88
= 11.244
The estimate 1.5093 of
2
means that an increase (decrease) in house size x
i
of
one square meter is associated on average with an increase (decrease) in house
price of 1.5093 thousands of dollars, or 1 509.3 dollars. The estimate 11.2438
of
1
means that the average house price when x
i
= 0 is 11.244 thousands of
dollars, or 11 244 dollars
b)
2
=

u
2
i
n2
=
348053
86
= 4 047.13
c) ESS = TSS RSS =

(y
i
y)
2

u
2
i
= 917 854.51 348 053.43 = 569
801.
r
2
=
ESS
TSS
=
569801
917854
= 0.6208
Interpretation of r
2
= 0.6208: The value of 0.6208 indicates that 62.08 percent
of the total sample (or observed) variation in y
i
(house prices) is explained by
the regressor x
i
(house size, measured in square meters).
d) The 95% condence interval is given by:

2
t
0.025
(86)

2
that is:
1.5093 1.988 0.1272
and the condence interval is (1.256; 1.762).
1
e) The test statistic is:
t =

2
where

2
=

(x
i
x)
2
=
_
4047.13
250144
= 0.1272
The observed tvalue becomes:
t
obs
=
1.5093 1
0.1272
= 4.004
The decision rule is: reject H
0
if |t
obs
| > t
0.025
(86) = 1.988. Decision: Reject
H
0
.
Meaning of test outcome: Rejection of the null hypothesis
2
= 1 against the
alternative hypothesis
2
= 1 means that the sample evidence favours that the
slope is dierent from 1.
f) The estimate of y
i
given x
i
= 100 is given by:
( y
i
|x
i
= 100) = 11.244 + 1.5093 100 = 162.174
g) The 95% condence interval for the estimate in f) is given by:
y
i
t
0.025
(86)

2
_
1
n
+
(x
0
x)
2

(x
i
x)
2
_
which here becomes:
162.174 1.988

_
4047.13
_
1
88
+
(100 187.07)
2
250144
_
That is, the 95% condence interval for the true y
i
|x
i
= 100 is 162.17425.817
or between 136 357 and 187 991 dollars.
h) Use the following test statistic to test whether the incremental contribution
of the new variable is signicant:
F =
(R
2
new
R
2
old
)/numberofnewregressors
(1 R
2
new
)/(n numberofparametersinthe newmodel)
which here becomes:
2
F =
(0.7 0.6208)/1
(1 0.7)/(88 3)
= 22.44 > F

(1, 85)forallvalueson.
That is the contribution of the new variable is signicant and should be kept in
the model.
Problem 2
a) False. Heteroscedasticity occurs when the variance of the disturbance term
is not the same for all observations
b) False. The estimates are still unbiased but inconsistent.
c) False. R
2
will probably increase even if we include irrelevant variables.
d) False.
e) True.
f) True.
g) False. It is a test for autocorrelation in the residuals.
h) True.
Problem 3
a) Anv and Durbin-Watsons test:
H
0
: Residualerna ar inte autokorrelerade (oberoende)
H
1
: Residualerna ar negativt autokorrelerade
Testvariabel:
d =

n
t=2
( u
t
u
t1
)
2

n
t=1
u
2
t
=
27.3078
9.7924
= 2.79
Here: d
U,0.05
= 1.777, d
L,0.05
= 0.559, d
U,0.01
= 1.489 and d
L,0.01
= 0.345 which
means that 4 d
U,0.05
< d
obs
< 4 d
L,0.05
and 4 d
U,0.01
< d
obs
< 4 d
L,0.01
,
the test is inconclusive.
b) If positive residuals tends to be followed by negative residuals one period
in time later, then the residuals are negatively autocorrelated. This might be
solved using the rst dierence method or the Cochrane-Orcutt procedure (see
chapter 12)
c)
2
=

u
2
t
n3
=
9.7924
5
1.958. We test H
0
:
2
= 1 vs H
0
:
2
= 1 using the
test statistic:

2
=

2
(n 3)

2

2
(n 3)
3
which here becomes

2
obs
=
1.958 5
1
= 9.7924
and

2
0.975
(5) = 0.831211 <
2
obs
<
2
0.025
(5) = 12.8325
d) A 95% condence interval for
2
is given by:
(n 3)

2

2
/2

2
(n 3)

2

2
1/2
or
5
1.958
12.8325

2
5
1.958
0.831211
That is, with 95% condence the true value of
2
lies between 0.763 and 11.778.
e) Use the Fstatistic:
F
i
=
R
2
x
i
x
2
x
3
x
k
/(k 2)
(1 R
2
x
i
x
2
x
3
x
k
)/(n k + 1)
=
0.84/1
(1 0.84)/6
= 31.5
F
i,obs
= 31.5 > F

(1, 6) for all values on .

Problem 4
The OLS estimate,

,is given by:
=

(x
i
x) (y
i
y)

(x
i
x)
2
=

(x
i
w
2
(x w
2
)) (y
i
w
1
(y w
1
))

(x
i
w
2
(x w
2
))
2
=

(x
i
x) (y
i
y)

(x
i
x)
2
The OLS estimate of becomes:
= y w
1

(x w
2
)
b) According to a) is the OLS estimate of unbiased. This is however not the
case for :
E( ) = E
_
y w
1

(x w
2
)
_
= E
_
y

x
_
+ E(w
1
+

w
2
) = w
1
+ w
2
That is, E( ) = .
c) Measurement error in y
i
. The variance of

increases by the value of

1

(x
i
x)
2
.
4