HARAMAYA UNIVERSITY

College of Business and Economics

Department of Economics
Econometrics Assignment

Part I: Brie‡y discuss the following Questions

1. Write the assumptions of Classical Linear Regression Model whenever the model has
two or mor explanatory variables?

2. What is the di¤erence Between Linear Probability Model (LPM), Logit, and Probit
Model?

3. What is Maximum likelihood Estimation?

4. Discuss the concept of time series model (include Stationarity and stationary test)

5. What is the main di¤erence between autoregressive model and autoregressive distrib-
uted lag model?

Part II: Workout

6. Proof the OLS estimators of b and b for a model, Yi = c0 + b1 X + 2 X2 + Ui :

7. Given the following table includes the Per-capita Income (X) and the demand for food
(Y) for a country over ten years period.

Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Y 100 110 120 130 140 150 160 170 180 190 200 250
X 600 650 660 680 700 860 900 960 870 1000 1200 1600

A. Estimate the food function

B. Estimate the conditional mean of Y corresponding to a value of X …xed at X=110.

D. Calculate the variance of our estimates.

E. Compute the coe¢ cient of determination and …nd the explained and unexplained vari-
ation in the deman for food.

F. Compute the standard error of the regression coe¢ cients and conduct test of signi…-
cance at the 5% level of signi…cance.

G. Obtain a 95% con…dence interval for your estimates.

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1. Given the following data on the dependent variable (Y) and independent variables (X1
and X2 ), such that Y is modelled as function of X: Yi = c0 + b1 X + 2 X2 + Ui

No Y X1 X2
1 11000 300 80
2 12000 350 100
3 13000 450 400
4 14000 600 500
5 18000 900 450
6 20000 1000 600
7 25000 1100 700
8 26000 1200 800
9 27000 1300 980
10 30000 1400 990
11 40000 1600 1000
12 45000 1800 1200
13 46000 1700 1400
14 50000 2000 1800
15 60000 2100 2500

A. Estimate the regression line of Y on X1 and X2 and interpret the results.

B. Estimate the conditional mean of Y corresponding to a value of X at X1 =600 and

X2 =1200.

C. Estimate the regression line of Y on X1 and X2 with zero intercept.

D. Calculate the variance of the parameters.

E. Compute the coe¢ cient of determination and …nd the explained and unexplained vari-
ation in Y.

F. Compute the standard error of the regression coe¢ cients and conduct test of signi…-
cance at the 5% level of signi…cance.

G. Obtain a 95% con…dence interval for your estimates.

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4. Most individuals want to apply for a loan at a bank to run their business. It obvious
that all application are not approved. A researcher want to investigate the determinants
of loan application approval for 1000 individuals at Commercial Bank of Ethiopia. The
study estimate the following model in which the dependent variable is Loan = 1 if loan
application is accepted, = 0 if otherwise. And the explanatory variables are Income
(the amount of money the applicant received per year), Education (1 if the applicants
is a university graduate and 0, otherwise), and Marriage (1 if the applicant is married,
0 if otherwise).

Regression model LPM Logit ME of Logit Probit ME of Probit

Income 0.908 2.456 0.09 2.467 0.023
(0.007) (0.005) (0.009)
Marriage 0.0956 2.089 0.07 2.095 0.093
(0.056) (0.057) (0.089)
Education 1.702 3.76 0.098 5.467 0.098
(0.034) (0.059) (0.090)
Constant 4.702 3.57 0.086 9.889 0.078
(0.134) (0.459) (0.679)
ME refers to Marginal E¤ect. ***, **, & * shows signi…cant at 1%, signi…cant at
5%, and signi…cant at 10%.

A. Interpret the coe¢ cients of LPM model.

B. What is the implication of the Logit and Probit model estimates.

C. Interpret the marginal e¤ect of Logit and Probit model.

D. Analyze the di¤erence between LPM, Logit, and Probit Model estimates.