Homework 3 (4 Points), due at the beginning of class on September
21, 2016
Please use House data posted on my webpage to answer following questions
• Q1 (1 point) Report the multiple regression
log(rpice) = β0 + β1 darea + β2 darea2 + u,
(Regression A)
where darea is the demeaned area (or deviation of area from its mean):
darea = area − sample mean of area.
Please interpret β1 . How to check whether the quadratic term darea2 is necessary?
Hint: read page 199.
• Q2 (1 point) Report the multiple regression:
rpice = β0 + β1 area + β2 baths + u,
(Regression B)
and find the 90% prediction interval for rpice for a house with area = 2000, baths = 3.
Please describe how to make the economic decision whether or not to buy this house.
Hint: read page 208 and equation [6.31]. To change the significance level, consider
reg y x, level(90)
• Q3 (2 point) Consider the Beta regression
zrpice = c0 + c1 zarea + c2 zbaths + u,
(Regression C)
where zw denotes the z score of variable w (Read page 189). Consider the null hypothesis
H0 : c1 = c2 .
How to interpret this hypothesis? Please fit a restricted regression that imposes this
null hypothesis and obtain RSS r . Finally, show me the math to obtain the F test for
this null hypothesis, and draw a conclusion.
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