QUESTION 2 Model comparison is very important in econometric analysis. Mr Homoscedasticity Mbewe, a Senior Researcher at the Ministry of Finance was conducting an analysis into factors that influence consumer loan default in Zambia. He obtained the following restricted model (model 11: Variable P-value Coefficient Model Values R-Squared-066 Age 0.08 0.03 Income 0.00 0.08 T55-6020 Marital status 0.01 010 RSS-2623-61 AS-2023.61 Model 2: The unrestricted model has additional variables of Employment status with -0.08 p-value and 0.31 coefficient value, and Financial literacy with 0.23 p-value and 0.013 coefficient value. The sample size (n) of his study was 542 and he used 5% level of significance in his estimation. i) [5 marks] Using the F-test, demonstrate how Mr Homoscedasticity can conduct his model comparison (between restricted and the unrestricted models) Given the information below, comment on the model fit and compare your conclusions to those under the F-test conducted in () ii) [5 marks] Criteria Model 1 Model 2 AIC 4020 12 4068 53 BIC 4055.08 4157.82 Adjusted R-squared 0.68 0.64 iii) It is argued that "there is a temptation of adding extra variables during an estimation Why do you think this is the case? Further discuss this statement using the Adjusted and the ordinary+ [5 marks] iv) Explain one possible variable state of the employment variable given individuals were asked whether they were employed or not. [3 marks] v) Explain how you can interpret the employment variable assuming it is significant, and in the level-level' model specification [2 marks] QUESTION 2 Model comparison is very important in econometric analysis. Mr Homoscedasticity Mbewe, a Senior Researcher at the Ministry of Finance was conducting an analysis into factors that influence consumer loan default in Zambia. He obtained the following restricted model (model 11: Variable P-value Coefficient Model Values R-Squared-066 Age 0.08 0.03 Income 0.00 0.08 T55-6020 Marital status 0.01 010 RSS-2623-61 AS-2023.61 Model 2: The unrestricted model has additional variables of Employment status with -0.08 p-value and 0.31 coefficient value, and Financial literacy with 0.23 p-value and 0.013 coefficient value. The sample size (n) of his study was 542 and he used 5% level of significance in his estimation. i) [5 marks] Using the F-test, demonstrate how Mr Homoscedasticity can conduct his model comparison (between restricted and the unrestricted models) Given the information below, comment on the model fit and compare your conclusions to those under the F-test conducted in () ii) [5 marks] Criteria Model 1 Model 2 AIC 4020 12 4068 53 BIC 4055.08 4157.82 Adjusted R-squared 0.68 0.64 iii) It is argued that "there is a temptation of adding extra variables during an estimation Why do you think this is the case? Further discuss this statement using the Adjusted and the ordinary+ [5 marks] iv) Explain one possible variable state of the employment variable given individuals were asked whether they were employed or not. [3 marks] v) Explain how you can interpret the employment variable assuming it is significant, and in the level-level' model specification [2 marks]