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Question 3 (a) The research analyst is puzzled about the different outcome (s)he obtains in regression 1 (exhibit 1) and regression 2 (exhibit 2) regarding

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Question 3 (a) The research analyst is puzzled about the different outcome (s)he obtains in regression 1 (exhibit 1) and regression 2 (exhibit 2) regarding the marginal effect of A real estate analyst produces the following estimation results using cross-section data for house prices on mortgage demand. Discuss the contrasting findings. Can you different countries. Exhibitl is the result of a regression of mortgage (demand for new provide an explanation for such contrasting findings? mortgages) on hprice (a housing price index). Exhibit 2 is the result of a regression of [10 marks] mortgage on hprice and income (GDP per capita). (b) Using the appropriate model (i.e. Exhibit 1 or Exhibit 2), answer the question of whether house prices have a significant effect on house price investment. Conduct a EXHIBIT 1 two-sided test at the 5% significance level to answer this question. Dependent Variable: MORTGAGE [10 marks] Method: Least Squares Sample: 1 42 (c) Answer part (b) now constructing a two-sided 95% confidence interval instead. Included observations: 42 Does the confidence interval provide the same answer as you obtained using the test Variable Coefficient Std. Error t-Statistic in part (b)? Discuss your answer. Prob. [10 marks] C 0.550235 0.043027 -12.78824 0.0000 HPRICE 1.240943 0.382419 R-squared 0.208390 Mean dependent var -0.666155 Adjusted R-squared 0. 188599 S.D. dependent var 0.172543 S.E. of regression 0. 155423 Akaike info criterion -0.838881 Sum squared resid 0.966256 Schwarz criterion -0.756135 log likelihood 19.61651 F-statistic 10.52990 Durbin-Watson stat 0.814165 Prob(F-statistic) 0.002376 EXHIBIT 2 Dependent Variable: MORTGAGE Method: Least Squares Sample: 1 42 Included observations: 42 Variable Coefficient Std. Error t-Statistic Prob. C -0.903231 0.132260 -6.829230 0.0000 HPRICE -0.380961 0.148835 INCOME 0.009829 0.003512 2.798444 0.0079 R-squared 0.340765 Mean dependent var -0.666155 Adjusted R-squared 0.306958 S.D. dependent var 0.172543 S.E. of regression 0. 143641 Akaike info criterion -0.974252 Sum squared resid 0.804675 Schwarz criterion -0.850133 Log likelihood 23.45930 F-statistic 10.07976 Durbin-Watson stat 1.048727 Prob(F-statistic) 0.000296

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