Assignment for Introduction to Econometrics

1. For which violation of the classical linear regression assumption does Durbin-Watson test

is used for detection? And outline the procedure for the test merely formulating the

hypotheses and stating the decision rule using the measure of autocorrelation, , and the

Durbin-Watson statistics, d-statistics.

2. The economic theory of investment states that investment expenditure at a given point in

time (It) is negatively affected by interest rate at a given point in time (rt). Suppose that the

functional relationship in the stated economic theory is linear and estimated values of the

intercept and slope are 82 and 0.6 respectively. Based on the stated economic theory and the

associated information, derive the estimated econometric model and predicate the value of

the dependent variable provided that 50 is given as value of the independent variable.

3. The following estimated equation was obtained by OLS regression using quarterly data for

1978 to 1996 inclusive.

(3.4) (0.005)

2.20 0.104 t t Y X

Standard errors are in parentheses, the explained sum of squares and the residual sum of

squares were 109.6 and 18.48 respectively. Thus,

a) Test a 5% level of significance for the statistical significance of the parameter

estimates using t-test technique

b) Test the overall test of significance ant 1%

c) Calculate the coefficient of determination

4. Consider the following estimated regression model of monthly earnings of 25 employees

selected at random from the pool of employees in a given organization. Assuming the

monthly earning (ME) is affected by two explanatory variables-SEX and AGE of

employees, the regression output is given as

2

0.825

( 0.60) (0.18) (0.03)

1.65 0.33 0.4

2

R

ME SEX AGE

Given the standard errors of each estimate in brackets answer the following questions

A. Test the statistical significance of the intercept using standard error test

B. Test the statistical significance of SEX at 5% level of significance

C. Test the overall significance of the model at 1% level of significance

D. Interpret R2