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Chapter: 5 -Problem: 23 >> Would you reestimate Equation (5.22) dropping the intercept? Why or why not? Transcribed Image Text: Y = -0.2594+20.5880 T t=(-0.2572) (4.3996) X, r² = 0.6594 2.2 (5.22)
Answer Preview: Computations will show that the raw r 2 is 0 169. The one in Equation …

, Chapter: 7 -Problem: 7 >> What are the consequences of including irrelevant variables in a model?
Answer Preview: In the presence of the irrele…

, Chapter: 1 -Problem: 6 >> Table 1-4 on the book's website gives monthly data on the closing prices of the Dow Jones Industrial Average and the Standard & Poor's 500 stock market indexes. The data are from Yahoo Finance's historical stock quotations page.a. Plot these data with time on the horizontal axis and the two variables on the vertical axis. If you prefer, you may use a separate figure for each variable.b. What relat
Answer Preview: a. b. We would expect to find some degree of a positive relationship between the t…

, Chapter: 1 -Problem: 9 >> Table 1-7 on the book’s website gives data on Corruption Perception Index and GDP per worker.a. Plot Corruption Perception Index against GDP per worker.b. A priori, what kind of relationship do you expect between the two variables?c. Does the scattergram suggest that the relationship between the two variables is linear (i.e., a straight line)? If so, sketch the regression line.
Answer Preview: a. b. A priori, we expect a positive relationship …

, Chapter: 1 -Problem: 12 >> Based on the data for 1947–2002, Kellsted and Whitten obtained the following regression: M? = 74.00 -2.71GDPt where M = percentage of households in which a married couple is present and GDP = gross domestic product.a. Does this result make sense?b. How would you interpret the regression?c. Is there a cause-and-effect relationship between the two variables?
Answer Preview: a. No, it is counter intuitive. b. For every 1 uni…

, Chapter: 10 -Problem: 11 >> Explain why most economic time-series data show positive autocorrelation.
Answer Preview: Most economic time-series data show positive autocorrelation due to inertia or sluggishness. Thus…

, Chapter: 11 -Problem: 6 >> Find out if the GDP and money supply time series given in Table 11-7 (on the book's website) are individually stationary. If not, are their first differences stationary? Are the two time series cointegrated? Show the necessary calculations.
Answer Preview: To find out if the GDP time series is individually stationary, we perform the Dickey-Fuller test and the Augmented Dickey-Fuller test with 2 lags. Sta…

, Chapter: 8 -Problem: 2 >> What is the difference between perfect and imperfect multicollinearity?
Answer Preview: In perfect collinearity there is an …

, Chapter: 1 -Problem: 7 >> Table 1-5 on the book's website gives data on the exchange rate between the U.K. pound and the U.S. dollar (number of U.K. pounds per U.S. dollar), as well as the consumer price indexes in the two countries for the period 1985–2007.a. Plot the exchange rate (ER) and the two consumer price indexes against time, measured in years.b. Divide the U.S. CPI by the U.K. CPI and call it the relative price
Answer Preview: (a) The diagrams will show that both consumer price indexes …

, Chapter: 11 -Problem: 2 >> Table 11-10 on the book's website gives annual data on the German-U.S. exchange rate for the Period 1, 1950 to 2010.a. Plot the data in this table. What does a visual inspection of the data tell you?b. Determine if this exchange rate follows a random walk. If it does, what are the implications for forecasting the Germany/ United States exchange rate?c. Take the first differences of the data given
Answer Preview: a. The plot of the data is shown below. A visual inspection of the data tells us that the data is no…

, Chapter: 9 -Problem: 4 >> Explain intuitively why the method of weighted least squares (WLS) is superior to OLS if heteroscedasticity is present.
Answer Preview: By giving unequal weights, WLS discoun…

, Chapter: 1 -Problem: 10 >> Table 1-2 on the website updates the data given in Table 1-1 for the years 2001–2016. For the years 2001–2007, the CLFR and CUNR figures are the same as those shown in Table 1-1. However, the AHE82 figures differ in the two periods. As pointed out in the text, the differences are usually due to data revisions.a. Plot CLFR and CUNR as in Figure 1-1. What difference due you see in the two scattergra
Answer Preview: a. There are a smaller number of scatter points relative to that in Figure 1-1, and there is an appr…

, Chapter: 1 -Problem: 13 >> Table 1.9 on the book's website gives data on the following variables for 99 countries obtained from the Human Development Report for 1994. LifeExp = 1992 life expectancy at birth TV = Televisions per 100 people PopDoc = Population per doctor (1990) GDP = real GDP per person adjusted for PPP (purchasing power parity)a. Plot life expectancy against each of the other variables in separate graphs.b.
Answer Preview: a. b. A priori, we expect a positive relati…

, Chapter: 12 -Problem: 6 >> From the website of the Frees book cited earlier, obtain panel data of your liking and estimate the model using the various panel estimation techniques discussed in this chapter.
Answer Preview: I obtained the panel data from the website of the Free book cited earlier. The data contains informa…

, Chapter: 1 -Problem: 5 >> President Joe Biden plans to propose to the U.S. Congress an infrastructure investment plan (highways, bridges, tunnels, etc.) at a cost of about $2 trillion. To pay for this, he also plans to increase the tax rate on high-income earners as well as private corporations, although the details are yet to be worked out. How would you design an econometric study to assess the economic consequences, bot
Answer Preview: There are many alternative designs possible. However, to keep things simple, and discuss just a basi…

, Chapter: 8 -Problem: 1 >> What is meant by collinearity? And by multicollinearity?
Answer Preview: An exact linear relationship be…

, Chapter: 2 -Problem: 3 >> Since we do not observe the PRF, why bother studying it? Comment on this statement.
Answer Preview: The PRF is a theoretical, or ideali…

, Chapter: 1 -Problem: 8 >> Table 1-6 on the textbook website contains data on 1,247 cars for 2008.14 To find out if there is there a relationship between a car’s MPG (miles per gallon) and the number of cylinders it has:a. Create a scatterplot of the combined MPG for the vehicles based on the number of cylinders.b. Sketch a line that seems to fit the data.c. What type of relationship is indicated by the plot?
Answer Preview: (a), (b), and (c). The plot shows a relatively negative relationship between the …

, Chapter: 5 -Problem: 29 >> Table 1-7 on the book’s website gives data for 83 countries on per worker GDP for 1997 and the Corruption Perception Index for 1998.a. Plot the index against per-worker GDP.b. Based on the plot, what might be an appropriate model relating the index to per-capita GDP?c. Present the result of the chosen model(s) and discuss them. d. Do the results make any sense?
Answer Preview: a. Below is the plot of the corruption perception index against per capita GD…

, Chapter: 7 -Problem: 4 >> What are different types of specification errors? Can one or more of these errors occur simultaneously?
Answer Preview: Exclusion of relevant variables; inclu…

, Chapter: 1 -Problem: 2 >> How do you perceive the role of econometrics in decision making in business and government?
Answer Preview: Econometricians are now routinely employed in governm…

, Chapter: 1 -Problem: 11 >> Table 1-8 on the book's website gives quarterly data on real personal consumption expenditure (RPCE) and real personal disposable (after-tax) income (RPDI) for the years 2014–2019.a. Plot RPCE and RPDI on the same graph. What is your impression about the two time series?b. Graph RPCE against RPDI. What does the scattergram show?c. Visually sketch a regression line through the scatter points. What
Answer Preview: a. Both the series follow an upward trend, and RPCE is roughly …

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