Advanced Econometrics
Individual Assignment
Development Economics, MZLA,
Section 1: Statistical theories
Section 2: Simple and multiple regressions
Answer question 1 and 2 using the data with a file name ‘Consumption data, exer)
1. By using consump_yi as a dependent variable and income_x2i, tax_x4i,
famsize_x5i as independent variables,
(i). After making the necessary transformation on the above three variables,
estimate a separate regression for each of the following functional forms (2
points each)
a. Linear (general form)
Y = β0 + ∑ni=1 βi Xi
A∏ni=1 Xi βi
b. Exponential (general form)
1
∑ ∑
c. Translog ∅(𝑥) = 𝐴 ∏𝑛𝑖=1 𝑋𝑖 𝑏𝑖 𝑒 2 𝑖 𝑗 𝛽𝑖𝑗𝑙𝑛𝑋𝑖 𝑙𝑛𝑋𝑗
d. Cubic 𝑌 = 𝛽0 + 𝛽𝑖 ∑𝑛𝑖=1 𝑋𝑖 𝑘 where k=1, 2, 3
(ii). Based on your results in (i), identify which of the coefficients are significant
and at what significance level (2 points)
(iii). Interpret at least one of the coefficients from each functional form (2
points)
(iv). Explain how you test which one of the model in the following pairs fits
better to the data at hand (1 point each)
- translog or exponential functional form?
- the linear or cubic?
(v). Is there any serious problem of multicollinearity in the linear regression? If
there is, between which of the variables you find serious multicollinearity?
(2 point)
2. Using the same data set given above,
(i) Estimate a regression using consump_yi as a dependent variable and
income_x2i famsize_x5i sex_x6i region_x7i as independent variables and
interpret the coefficients of each of the dummy variables for sex and
region independently. (3 point)
(ii) Suppose you wanted to infer about the presence of significant differences
in average consumption levels between male and female in each region,
holding income and family size constant. Make the necessary
transformation of the data and estimate the regression that enables to
make the above inference. (3 point)
3. Using the data with a file name ‘Consumption data, heteroscedastic 4’,
(i) After testing the presence of heteroscedasticity using Breusch-Pagan Test
procedure, re-estimate the regression by using Weighted Least Square
method and explain your result. (4 point)
4. Using the data with a file name ‘Macroeconomic data, excercise’
(i) After regressing consumer price index against non-food price index, money
supply and value of export, show graphically if there is autocorrelation in
the regression. (2 points)
(ii) Using either Durbin_Watson or Breusch–Godfrey (BG) test, show whether
there is autocorrelation or not, and make the necessary correction that is
consistent with your test. (2 points)