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Chapter: 12 -Problem: 5 >> Some farmers were interested in predicting inches of growth of corn as a function of rainfall on a monthly basis, so they collected data from the growing season and estimated an equation of the following form:Gt = ?0 + ?1Rt + ?2Gt-1 + ?t Where:Gt = inches of growth of corn in month tRt = inches of rain in month t?t = a normally distributed classical error termThe farmers expected a negative sign f
Answer Preview: We suggest that the farmers rethink either the form of their equation or their expectation…

, Chapter: 1 -Problem: 7 >> Let’s return to the wage determination example of Section 1.2. In that example, we built a model of the wage of the ith worker in a particular field as a function of the work experience, education, and gender of that worker:WAGEi = ?0 + ?1EXPi + ?2EDUi + ?3GENDi + ?iwhere:Yi = WAGEi = the wage of the ith workerX1i = EXPi = the years of work experience of the ith workerX2i = EDUi = the years of edu
Answer Preview: (a) 2 represents the impact on the wage of the i th worker of a one-year increase in the education o…

, Chapter: 3 -Problem: 3 >> Do liberal arts colleges pay economists more than they pay other professors? To find out, we looked at a sample of 2,929 small-college faculty members and built a model of their salaries that included a number of variables, four of which were: Where:Si = the salary of the ith college professorMi = a dummy variable equal to 1 if the ith professor is a male and 0 otherwiseAi = a dummy variable equal
Answer Preview: (a) A male professor in this sample earns $817 more than a female professor, holding constant the ot…

, Chapter: 1 -Problem: 5 >> If an equation has more than one independent variable, we have to be careful when we interpret the regression coefficients of that equation. Think, for example, about how you might build an equation to explain the amount of money that different states spend per pupil on public education. The more income a state has, the more they probably spend on public schools, but the faster enrollment is growi
Answer Preview: (a) is the change in S caused by a one-unit increase in Y, hold…

, Chapter: 10 -Problem: 7 >> Let's investigate the possibility of heteroskedasticity in time-series data by looking at a model of the black market for U.S. dollars in Brazil that was studied by R. Dornbusch and C. Pechman. In particular, the authors wanted to know if the Demsetz-Bagehot bidask theory, previously tested on cross-sectional data from the United States, could be extended to time-series data outside the United Sta
Answer Preview: (a) To test for serial correlation, first run: S t = 0 73 + 0 22 I t + 0 46 1n (1 + V t ) (0 05) (0 …

, Chapter: 8 -Problem: 5 >> In 1998, Mark McGwire hit 70 homers to break Roger Maris€™s old record of 61, and yet McGwire wasn€™t voted the Most Valuable Player (MVP) in his league. To try to understand how this happened, you collect the following data on MVP votes, batting average (BA), home runs (HR), and runs batted in (RBI) from the 1998 National League:Just as you are about to run the regression, your friend warns you t
Answer Preview: (a) Dont change your regression just because a student says you are g…

, Chapter: 6 -Problem: 3 >> Consider the following annual model of the death rate (per million population) due to coronary heart disease in the United States (Yt): Where:Ct = per capita cigarette consumption (pounds of tobacco) in year tEt = per capita consumption of edible saturated fats (pounds of butter, margarine, and lard) in year tMt = per capita consumption of meat (pounds) in year ta. Create and test appropriate hypo
Answer Preview: (a) Coefficient: C E M Hypoth. Sign: + + + t-value: 4 0 4 0 2 0 t C = 1 314 reject reject do not (10…

, Chapter: 8 -Problem: 7 >> Calculating VIFs typically involves running sets of auxiliary regressions, one regression for each independent variable in an equation. To get practice with this procedure, calculate the following:a. The VIFs for N, P, and I from the Woody’s data in Table 3.1b. The VIFs for BETA, EARN, and DIV from the stock price example data in Table 7.2c. The VIF for X1 in an equation where X1 and X2 are the on
Answer Preview: (a) 2 35, 2 50, 1 18. (b) 1 01, 1 05, 1 04 (c) Since X 1 …

, Chapter: 3 -Problem: 7 >> Let’s get some more experience with the six steps in applied regression. Suppose that you’re interested in buying an Apple iPod (either new or used) on eBay (the auction website) but you want to avoid overbidding. One way to get an insight into how much to bid would be to run a regression on the prices11 for which iPods have sold in previous auctions.The first step would be to review the literatur
Answer Preview: (a) The best way to handle three discrete conditions is to specify two dummy variables. …

, Chapter: 16 -Problem: 5 >> Suppose that you€™re interested in the effect of price on the demand for a €œsalon€ haircut and that you collect the following data for four U.S. cities for 2003: and for 2008: a. Estimate a cross-sectional OLS regression of per capita quantity as a function of average price for 2003. Is the slope positive or negative? Does that meet your expectations? b. Now estimate a cross-sectional regression
Answer Preview: (a) The estimated slope is positive, which certainly runs counter to o…

, Chapter: 7 -Problem: 7 >> V. N. Murti and V. K. Sastri investigated the production characteristics of various Indian industries, including cotton and sugar. They specified Cobb–Douglas production functions for output (Q) as a double-log function of labor (L) and capital (K):lnQi = β0 + β1lnLi + β2lnKi + εiand obtained the following estimates (standard errors in parentheses): a. What are the elasticities of output wit
Answer Preview: (a) Since the equations are double-log, the elasticities are the coefficients themselves Industry La…

, Chapter: 14 -Problem: 7 >> Simultaneous equations make sense in cross-sectional as well as time-series applications. For example, James Ragan examined the effects of unemployment insurance (hereafter UI) eligibility standards on unemployment rates and the rate at which workers quit their jobs. Ragan used a pooled data set that contained observations from a number of different states from four different years (requirements f
Answer Preview: (a) QU: , , , +, +, + UR: +, +, +, +, +, (b) Yes, since UR and QU are jointly determined …

, Chapter: 7 -Problem: 5 >> In an effort to explain regional wage differentials, you collect wage data from 7,338 unskilled workers, divide the country into four regions (Northeast, South, Midwest, and West), and estimate the following equation (standard errors in parentheses): Where:Yi = the hourly wage (in dollars) of the ith unskilled workerEi = a dummy variable equal to 1 if the ith worker lives in the Northeast, 0 other
Answer Preview: (a) The Midwest (the fourth region of the country). (b) Perf…

, Chapter: 2 -Problem: 7 >> Suppose that you work in the admissions office of a college that doesn€™t allow prospective students to apply by using the Common Application.9 How might you go about estimating the number of extra applications that your college would receive if it allowed the use of the Common Application? An econometric approach to this question would be to build the best possible model of the number of college
Answer Preview: (a) Yes. Wed expect bigger colleges to get more applicants, and wed expect colleges that used the co…

, Chapter: 13 -Problem: 5 >> In 2008, Goldman and Romley studied hospital demand by analyzing how 8,721 Medicare-covered pneumonia patients chose from among 117 hospitals in the greater Los Angeles area. The authors concluded that clinical quality (as measured by a low pneumonia mortality rate) played a smaller role in hospital choice than did a variety of other factors.Let's focus on a subset of the Goldman–Romley sample:
Answer Preview: (a) The trick here is getting the expected sign right, because it wont be obvious to everyone that D…

, Chapter: 2 -Problem: 3 >> Consider the following two least-squares estimates of the relationship between interest rates and the federal budget deficit in the United States:Model A: Y?1 = 0.103 - 0.079X1 R2 = .00Where:Y1 = the interest rate on Aaa corporate bondsX1 = the federal budget deficit as a percentage of GNP (quarterly model: N = 56)Model T: Y?2 = 0.089 + 0.369X2 + 0.887X3 R2 = .40Where:Y2 = the interest rate on 3-m
Answer Preview: (a) The squares are least in the sense that they are being min…

, Chapter: 3 -Problem: 5 >> The Graduate Record Examination (GRE) subject test in economics was a multiple-choice measure of knowledge and analytical ability in economics that was used mainly as an entrance criterion for students applying to Ph.D. programs in the “dismal science.” For years, critics claimed that the GRE, like the Scholastic Aptitude Test (SAT), was biased against women and some ethnic groups. To test the pos
Answer Preview: (a) A male students GRE subject score in Economics is likely to be 39 7 points higher than a females…

, Chapter: 6 -Problem: 5 >> Let’s return to the model of financial aid awards at a liberal arts college that was first introduced in Section 2.2. In that section, we estimated the following equation (standard errors in parentheses):a. Create and test hypotheses for the coefficients of the independent variables.b. What econometric problems do you see in the equation? Are there any signs of an omitted variable? Of an irrelevan
Answer Preview: (a) Coefficient PARENT HSRANK Hypothesized sign: + Calculated t-score: 11 26 4 22 t c = 1 679 (5% level), so: reject H 0 reject H 0 (b) There are no o…

, Chapter: 9 -Problem: 7 >> As an example of impure serial correlation caused by an incorrect functional form, let€™s return to the equation for the percentage of putts made (Pi) as a function of the length of the putt in feet (Li) that we discussed originally in Exercise 3 in Chapter 1. The complete documentation of that equation is a. Test Equation 9.32 for serial correlation using the Durbin€“Watson test at the 5-percent
Answer Preview: (a) With a 5 percent, one-sided test and N = 19, K = 1, the critical values are d L = 1 18 and d U = …

, Chapter: 14 -Problem: 5 >> As an exercise to gain familiarity with the 2SLS program on your computer, take the data provided for the simple Keynesian model in Section 14.3, and:a. Estimate the investment function with OLS.b. Estimate the reduced form for Y with OLS.c. Substitute the Y? from your reduced form into the investment function and run the second stage yourself with OLS.d. Estimate the investment function with your
Answer Preview: (a) I t = 267 + 0 19Y t 9 26r t1 (0 01) (11 19) t = 15 87 0 83 R 2 = .956 N = 32 …

, Chapter: 16 -Problem: 3 >> The discussion of random assignment experiments in Section 16.1 includes models both with (Equation 16.2) and without (Equation 16.1) two additional observable factors (X1 and X2). In contrast, the discussion of natural experiments in Section 16.1 jumped immediately to Equation 16.3 below (which includes these factors) without discussing an equation similar to Equation 16.1.?OUTCOMEi = ?0 + ?1TREA
Answer Preview: In theory, one could design a random assignment experiment for which …

, Chapter: 9 -Problem: 3 >> Recall from Section 9.5 that switching the order of a data set will not change its coefficient estimates. A revised order will change the Durbin€“Watson statistic, however. To see both these points, run regressions (HS = β0+ β1P + ε) and compare the coefficient estimates and DW statistics for this data set:In the following three orders (in terms of year): a. 1, 2, 3, 4, 5b. 5, 4, 3, 2, 1c. 2, 4
Answer Preview: The coefficient estimates for all three orders are the same: …

, Chapter: 4 -Problem: 5 >> In Hollywood, most nightclubs hire €œpromoters,€ or people who walk around near the nightclub and try to convince passersby to enter the club. One of the nightclub owners asked a marketing consultant to estimate the effectiveness of such promoters in terms of their ability to attract patrons to the club. The consultant did some research and found that the main entertainment at the nightclubs was
Answer Preview: (a) Yes, Yes. In particular, theres no meas…

, Chapter: 2 -Problem: 5 >> Suppose that you have been asked to estimate a regression model to explain the number of people jogging a mile or more on the school track to help decide whether to build a second track to handle all the joggers. You collect data by living in a press box for the spring semester, and you run two possible explanatory equations:A: Y? = 125.0 – 15.0X1 - 1.0X2 + 1.5X3 R?2 = .75B: Y? = 123.0 – 14.0X1 +
Answer Preview: (a) Even though the fit in Equation A is better, most researchers w…

, Chapter: 5 -Problem: 9 >> Frederick Schut and Peter VanBergeijk16 published an article in which they attempted to see if the pharmaceutical industry practiced international price discrimination by estimating a model of the prices of pharmaceuticals in a cross section of 32 countries. The authors felt that if price discrimination existed, then the coefficient of per capita income in a properly specified price equation would
Answer Preview: (a) All five tests are one-sided, so tc = 1 706 throughout. GDPN: H 0 : 0, H A : > 0. Reject H 0 …

, Chapter: 4 -Problem: 3 >> Which of the following pairs of independent variables would violate Assumption VI? (That is, which pairs of variables are perfect linear functions of each other?)a. Right shoe size and left shoe size (of students in your class)b. Consumption and disposable income (in the United States over the last 30 years)c. Xi and 2Xid. Xi and (Xi)2
Answer Preview: Pair c clearly vi…

, Chapter: 8 -Problem: 3 >> A researcher once attempted to estimate an asset demand equation that included the following three explanatory variables: current wealth Wt, wealth in the previous quarter Wt-1, and the change in wealth ?Wt = Wt - Wt-1. What problem did this researcher encounter? What should have been done to solve this problem?
Answer Preview: Perfect multi-collinearity; each can …

, Chapter: 13 -Problem: 3 >> Because their college had just upgraded its residence halls, two seniors decided to build a model of the decision to live on campus. They collected data from 533 upper-class students (first-year students were required to live on campus) and estimated the following equation: Where:Di = 1 if the ith student lived on campus, 0 otherwiseUNITi = the number of academic units the ith student was takingAL
Answer Preview: (a) Coefficient UNIT ALCO YEAR GREK Hypothesized sign: + Calculated t -score: 0 84 1 55 8 25 1 38 t …

, Chapter: 5 -Problem: 5 >> Using the techniques of Section 5.3, test the following two-sided hypotheses:a. For Equation 5.8, test the hypothesis that:H0: ­2 = 160.0HA: ­2 ? 160.0at the 5-percent level of significance.b. For Equation 5.4, test the hypothesis that:H0: ­3 = 0HA: ­3 ? 0at the 1-percent level of significance.c. For Equation 5.6, test the hypothesis that:H0: ­2 = 0HA: ­2 ? 0at the 5-percent level of significance.
Answer Preview: (a) t 2 = (200 160)/25 0 = 1 6; t c = 2 052; therefore cannot …

, Chapter: 7 -Problem: 3 >> Look over the following equations and decide whether they are linear in the variables, linear in the coefficients, both, or neither:a. Yi = ?0 + ?1X3i + ?ib. Yi = ?0 + ?1ln Xi + ?ic. ln Yi = ?0 + ?1ln Xi + ?id. Yi = ?0 + ?1Xi?2 + ?ie. Yi?0 = ?1 + ?2X2i + ?i
Answer Preview: (a) Linear in the coefficients but not t…

, Chapter: 5 -Problem: 7 >> Suppose that you€™ve been asked by the San Diego Padres baseball team to evaluate the economic impact of their new stadium by analyzing the team€™s attendance per game in the last year at their old stadium. After some research on the topic, you build the following model (standard errors in parentheses): Where:ATTi = the attendance at the ith gameWINi = the winning percentage of the opponent in the
Answer Preview: (a) For both, H 0 : 0 and H A : > 0. For WIN, we cannot reject H 0 , even though the sign agrees wit…

, Chapter: 5 -Problem: 3 >> Create null and alternative hypotheses for the following coefficients:a. The impact of height on weightb. All the coefficients in Equation A in Exercise 5, Chapter 2c. All the coefficients in Y = ?0 + ?1X1 + ?2X2 + ?3X3 + ?, where Y is total gasoline used on a particular trip, X1 is miles traveled, X2 is the weight of the car, and X3 is the average speed traveledd. The impact of the decibel level
Answer Preview: (a) H 0 : 1 0, H A : 1 >0 (b) H 0 : 1 0, H A : 1 < 0; H 0 : 2 0, H A : 2 > 0; …

, Chapter: 6 -Problem: 7 >> Let€™s return to the model of Exercises 3-7 and 5-8 of the auction price of iPods on eBay. In that model, we used datafile IPOD3 to estimate the following equation: Where:PRICEi = the price at which the ith iPod sold on eBayNEWi = a dummy variable equal to 1 if the ith iPod was new, 0 otherwiseSCRATCHi = a dummy variable equal to 1 if the ith iPod had a minor cosmetic defect, 0 otherwiseBIDRSi = t
Answer Preview: (a) Theory: If PERCENT is the best proxy available for the quality and reliability of the seller, …

, Chapter: 14 -Problem: 3 >> The word recursive is used to describe an equation that has an impact on a simultaneous system without any feedback from the system to the equation. Which of the equations in the following systems are simultaneous, and which are recursive? Be sure to specify which variables are endogenous and which are predetermined:a. Y1t = ?0 + ?1Y2t + ?2X1t + ?3X2t-1 + ?1tY2t = ?0 + ?1Y3t + ?2Y1t + ?3X4t + ?2tY
Answer Preview: (a) The first two equations are simultaneous, but th…

, Chapter: 12 -Problem: 3 >> You€™ve been hired to determine the impact of advertising on gross sales revenue for €œFour Musketeers€ candy bars. Four Musketeers has the same price and more or less the same ingredients as competing candy bars, so it seems likely that only advertising affects sales. You decide to build a model of sales as a function of advertising, but you€™re not sure whether a distributed lag or a dynamic mo
Answer Preview: (a) SALES = 243 + 5 2AD t + 1 9AD t1 + 3 1AD t2 + 1 0AD t3 + 3 3AD t4 …

, Chapter: 9 -Problem: 5 >> Your friend is just finishing a study of attendance at Los Angeles Laker regular-season home basketball games when she hears that you€™ve read a chapter on serial correlation and asks your advice. Before running the equation on last season€™s data, she €œreviewed the literature€ by interviewing a number of basketball fans. She found out that fans like to watch winning teams. In addition, she lear
Answer Preview: (a) As weve mentioned, we prefer a one-sided Durbin-Watson d test, so with K = 3 and N = 40, the 5% …

, Chapter: 10 -Problem: 5 >> James Stock and Mark Watson suggest a quite different approach to heteroskedasticity. They state that “economic theory rarely gives any reason to believe that the errors are homoskedastic. It therefore is prudent to assume that the errors might be heteroskedastic unless you have compelling reasons to believe otherwise.” As a result, Stock and Watson automatically use HC standard errors without tes
Answer Preview: (a) Stock and Watson accurately describe the stand…

, Chapter: 12 -Problem: 7 >> In 2001, Heo and Tan published an article in which they used the Granger causality model to test the relationship between economic growth and democracy. For years, political scientists have noted a strong positive relationship between economic growth and democracy, but the authors of previous studies (which included Granger causality studies) disagreed about the causality involved. Heo and Tan stu
Answer Preview: (a) Such a split result is not unusual in correctly done applications of Granger causality when ther…

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14 Reviews for Using Econometrics A Practical Guide Textbook Questions And Answers