MN-1509 Econometrics 1: Assignment 1;

This assignment is an individual assignment counting towards 15% of the overall module

mark. This assignment must be submitted by 3pm on Friday 20th March 2015 via Turnitin.

Marks and related feedback is to be released within 3 weeks from the submission date. The

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count will be penalised as explained in your student handbook. The maximum word count for

this assignment is 3000 words, excluding references, footnotes, tables, graphs and figures.

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the School’s policy on Extenuating Circumstances for more information. Details of how to

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Question 1

Foodexp.xls gives data on expenditure on food and total expenditure measured in $, for a

sample of 55 households in USA for a recent period. Using this data, perform the following

tasks (using EVIEWS)

(a) Import these data into an EVIEWS work file. Plot the data on food expenditure and total

expenditure, and sketch a regression line through the scatter plots.

(20 marks)

2

(b) Regress food expenditure on an intercept and total expenditure. Comment on the R

square and the adjusted R square of this regression.

(20 marks)

(c) Comment on the F statistic of this regression as well as the t ratio for the significance of

the coefficient of total expenditure.

(20 marks)

(d) Create the logarithmic transformation of the two variables (food expenditure and total

expenditure) (call the resulting variable lnfood and lntotal respectively).Graph lnfood and

lntotal together and comment on the graph.

(20 marks)

(e) Regress lnfood on intercept and lntotal. Test whether the coefficient of lntotal is 1 using a

t test.

(20 marks)

You must provide EVIEWS output incorporated in your MS-Word document and fully explain

your actions and findings by commenting on the provided EVIEWS output directly.

Question 2

Consider the following regression results (estimated standard errors in parentheses) based

on data from a local cinema obtained at a monthly frequency over a two year period (n=24).

0.75

(1.03) (0.16) (0.10)

ln ˆ 1.54 0.76ln 0.30ln

2

2 3

?

? ? ?

R

Y X X t t t

where Yt = quantity of ‘hot-dogs’ demanded;;

X2t= price of ‘hot-dogs’;;

X3t=price of nachos;

R2=the coefficient of determination; and

ln= the natural logarithm of a variable.

(a) Comment on the economic interpretation that can be given to the estimates attached to

lnX2t and lnX3t and consider whether these estimates suggest hot-dogs and nachos are

substitutes or complements.

3

(40 marks)

(b) Comment on the statistical significance of each of the estimated coefficients at the 5 and

10 per cent levels. (30 marks)

(c) Use an F-test to test the statistical significance of the regression model, i.e., test whether

the population parameters attached to lnX2t and lnX3t are jointly equal to zero.

(30 marks)

You must provide REVIEWS output incorporated in your MS-Word document and fully explain

your actions and findings by commenting on the provided EVIEWS output directly.