INTRODUCTION TO ECONOMETRICS II ECO 306 NOUN 128 1.) The results of linear and logarithmic regressions of
consumer expenditure on food,
FOOD, on
DPI and a relative price index series for food,
PRELFOOD, using
the Demand Functions data set, are summarized below. Provide an economic interpretation of the coefficients and perform appropriate statistical tests.
̂
SEE) (0.002) (0.332)
̂
SEE) (0.01) (0.07)
2.) Sometimes a time trend is included in a regression as an explanatory variable, acting as a proxy for some gradual change not associated with income or price. Changing tastes might bean example. However,
in the present case, the addition of a time trend might give rise to a problem of multicollinearity because it will be highly correlated with the income series and perhaps also the price series. Calculate the correlations between the
TIME variable
in the data set,
LGDPI, and the logarithm of expenditure on your category. Regress the logarithm of expenditure on your category on
LGDPI, the logarithm of
the relative price series and TIME (not the logarithm of
TIME). Provide an interpretation
of the regression coefficients, perform appropriate statistical tests, and compare the regression results with those of
the same regression without TIME.
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