Estimate a simple regression of wage on education

Assignment Help Econometrics

Reference no: EM132368423

Econometrics Problems

Problem One (to be done before the lab session) Do Problem on pages 75-76 of the textbook "Principles of Econometrics".

Consider the following live observations. You are to do all the parts of this exercise using only a calculator.

x	y	x - x^-	(x - x^-)²	y - y^-	(x - x^-)( y - y^-)
0	6
1	2
2	3
3	1
4	0
∑x_i =	∑y_i =	∑(x_i-x^-) =	∑(x_i - x^-)² =	∑(y_i - y^-) =	∑ (x_i - x^-)( y_i - y^-) =

(a) Complete the entries in the table. Put the sums in the last row. What are the sample means x^- and y^-?

(b) Calculate b₁ and b₂ using (2.7) and (2.8) and state their interpretation.

∑(x_i-x^-)² = ∑x_i² - Nx^-2 and ∑(x_i - x^-)( y_i - y^-) = ∑x_iy_i - N(xy)^-

(d) Use the least squares estimates from pan (b) to compute the lined values of ); and complete the remainder of the table below. Put the sums in the last row.

x_i	y_i	y^{^}_i	e^{^}_i	e^{^}_i²	x_ie^{^}_i
0	6
1	2
2	3
3	1
4	0
∑x_i =	∑y_i =	∑y^{^}_i =	∑e^{^}_i =	∑e^{^}_i² =	∑ x_ie^{^}_i=

(e) On graph paper, plot the data points and sketch the lilted regression line y^{^}_i = b₁ + b₂x_i.

(f) On the sketch in part (e), locate the point of the means (x^-, y^-). Does your lilted line pass through that point? If not, go back to the drawing board, literally.

(g) Show that for these numerical values y^- = b₁ + b₂x^-.

(h) Show that for these numerical values x^- = y^-, where y^- = ∑y^{^}_i/N.

(i) Compute σ^{^2}.

(j) Compute (var(b₂))^{^}.

Problem Two (to be done during the lab session) Review sections 2.1 to 2.6 of Chapter 2 of "Using Eviews for Principles of Econometrics, Fourth Edition". It would be a good idea to work through this at home.

(a) Download the workfile cps_small.wf1, and the documentation file, cps_small.def.

(b) Load cps_small.wf1 into Eviews.

(d) Write your interpretation (in one sentence) of the coefficient of education from your regression on your results. Is it plausible? Explain in one sentence.

(e) Write your interpretation (in one sentence) of the coefficient on the constant term in one sentence on your results. Is it meaningful? Explain in one sentence.

(f) State the estimated standard error on the coefficient on education. Comment in one sentence on how large it is relative to the coefficient.

(g) State the estimated standard error of the residuals of this regression. Highlight it on your results.

Attachment:- Econometrics Problems.rar

Reference no: EM132368423

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