Estimate the equation and report the results

Reference no: EM132368495

Econometrics Problems -

Problem One (to be done before the lab session) - Do Problem on pages 246-247 of the textbook "Principles of Econometrics" excluding parts (f) and (g).

Consider the wage equation

In(WAGE) = β₁ + β₂EDUC + β₃EDUC² + β₄EXPER + β₅EXPER²+ β₆(EDUC x EXPER) + β₇HRSWK + e

where the explanatory variables are years of education, years of experience and hours worked per week. Estimation results for this equation, and for modified versions of it obtained by dropping some of the variables, are displayed in Table 6.4 (attached). These results are from the 1000 observations in the file cps4e_small_dat.

(a) Using an approximate 5% critical value of t_c = 2, what coefficient estimates are not significantly different from zero?

(b) What restriction on the coefficients of Eqn (A) gives Eqn (B)? Use an F-test to test this restriction. Show how the same result can be obtained using a blest.

(c) What restrictions on the coefficients of Eqn (A) give Eqn (C)? Use an F-test to test these restrictions. What question would you be trying to answer by performing this test?

(d) What restrictions on the coefficients of Eqn (B) give Eqn (D)? Use an F-test to test these restrictions. What question would you he trying to answer by performing this test?

(e) What restrictions on the coefficients of Eqn (A) give Eqn (E)? Use an F-test to test these restrictions. What question would you be trying to answer by performing this test?

(f) Based on your answers to parts (a) to (e), which model would you prefer? Why?

(g) Compute the missing AIC value for Eqn (D) and the missing SC value for Eqn (A). Which model is favored by the AIC? Which model is favored by the SC?

Problem Two (to be done during the lab session) Review sections 6.1 to 6.2 of Chapter 6 of "Using Eviews for Principles of Econometrics, Fourth Edition". It would be a good idea to work through this at home.

Download the files tuna.wf1 and tuna.def and complete exercise on page 253 of the textbook. Skip part (c) but you will need to use the specification described in this part in subsequent parts.

Data on the weekly sales of a major brand of canned tuna by a supermarket chain in a large mid-western U.S. city during a mid-1990s calendar year are contained in the file tuna.dat. There are 52 observations on the variables. The variable SAL1 = unit sales of brand no. 1 canned tuna, APRI = price paean of brand no. I canned tuna, APR2, APR3 = price per can of brands nos. 2 and 3 of canned tuna.

(a) Interpret the coefficients in the following equation. What are their expected signs?

In(SALI) = β₁ + β₂In(APRI) + β₃In(APR2) + β₄ln(APR3) + e

(b) Estimate the equation and report the results. Do the estimates have the expected signs? Are they significantly different from zero at a 5% significance level?

(c) The marketing manager for no. I brand of tuna claims that it is the price of brand 1 relative to the prices of brands 2 and 3 that is important. She suggests the model

ln(SALI) = α₁ + α₂ln(APR1/APR2) + α₃ln(APR1/APR3) + e

Show that this model is a restricted version of the original model where β₂ + β₃ + β₄ = 0, with α₂ = - β₃ and α₃ = -β₄.

(d) Using a 10% significance level, test whether the data supports the marketing manager's claim.

(e) Estimate the restricted model given in part (c). Report the results. Interpret the estimates. Are the estimates significantly different from zero?

(f) Which brand, no. 2 or no. 3. is the strongest competitor to brand no. 1? Why?

(g) Does a hypothesis test confirm sour answer to part (f)? Do the test twice: once using the model in part (a) and once using the model in pan (c).

Attachment:- Assignment Files.rar

Reference no: EM132368495

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