Question 1

Table 4.2

Y X1
100 3540
120 3500
130 3420
140 3410
152 3360
162 3351
178 3250
185 3210
195 3150
200 3100
250 3050
254 3024
260 3018
270 3008
285 2988

a. Given the data in Table 4.2, Regress lny = β1 + β2 lnx1 + β3 lnx2 + β4 lnx3 + β5 lnx4.
Dependent Variable: LNY
Method: Leas t Squares
Date: 04/14/22 Time: 13:44
Sample: 1 15
Included observations: 15

Variable Coefficient Std. Error t-Statistic Prob.

C -37.43388 39.52267 -0.947150 0.3659

LNX1 -0.307061 1.840905 -0.166799 0.8709
LNX2 0.756649 0.400973 1.887030 0.0885
LNX3 0.042310 0.493233 0.085781 0.9333
LNX4 4.173017 2.366343 1.763487 0.1083

R-squared 0.985122 Mean dependent var 5.210477

Adjusted R-squared 0.979171 S.D. dependent var 0.324007
S.E. of regres sion 0.046762 Akaike info criterion -3.026309
Sum squared resid 0.021866 Schwarz criterion -2.790292
Log likelihood 27.69732 Hannan-Quinn criter. -3.028823
F-statistic 165.5343 Durbin-Watson stat 2.471554
Prob(F-statistic) 0.000000

lny= -37.4339- 0.3071 lnx1+ 0.7566 lnx2+ 0.0423 lnx3+ 4.1730 lnx4

b. Test at 10% significance level if the errors are series uncorrelated.

 Breusch-Godfrey Serial Correlation LM Test:
Null hypothes is: No serial correlation at up to 2 lags

F-statistic 1.110182 Prob. F(2,8) 0.3754

Obs*R-squared 3.258735 Prob. Chi-Square(2) 0.1961

Test Equation:
Dependent Variable: RESID
Method: Leas t Squares
Date: 04/14/22 Time: 13:48
Sample: 1 15
Included observations: 15
Pres ample missing value lagged residuals set to zero.

Variable Coefficient Std. Error t-Statistic Prob.

C -14.62019 40.52313 -0.360786 0.7276

LNX1 0.954037 1.931466 0.493944 0.6346
LNX2 0.336897 0.456550 0.737918 0.4816
LNX3 0.007406 0.497371 0.014890 0.9885
LNX4 0.426233 2.378051 0.179236 0.8622
RESID(-1) -0.547654 0.380611 -1.438881 0.1881
RESID(-2) -0.342911 0.359228 -0.954577 0.3677

R-squared 0.217249 Mean dependent var -3.79E-15

Adjusted R-squared -0.369814 S.D. dependent var 0.039521
S.E. of regres sion 0.046255 Akaike info criterion -3.004583
Sum squared resid 0.017116 Schwarz criterion -2.674160
Log likelihood 29.53437 Hannan-Quinn criter. -3.008103
F-statistic 0.370061 Durbin-Watson stat 2.203376
Prob(F-statistic) 0.878800

H0: No autocorrelation
H1: Autocorrelation
P= 0.1961 (>0.1), not significant at 10% significance level.
Fail to reject H0, there is no autocorrelation in the model.

c. Test at 5% significance level if the errors are heteroscedasticity.

Heteroskedasticity Test: White
Null hypothes is: Homoskedasticity

F-statistic 1.539391 Prob. F(6,8) 0.2791

Obs*R-squared 8.037968 Prob. Chi-Square(6) 0.2353
Scaled explained SS 2.893494 Prob. Chi-Square(6) 0.8221

Test Equation:
Dependent Variable: RESID^2
Method: Leas t Squares
Date: 04/14/22 Time: 13:52
Sample: 1 15
Included observations: 15
Collinear test regressors dropped from specification

Variable Coefficient Std. Error t-Statistic Prob.

C 1.400952 0.861188 1.626767 0.1424

LNX1^2 -1.66E-05 0.148904 -0.000111 0.9999
LNX1*LNX2 0.043566 0.157235 0.277077 0.7887
LNX1*LNX3 -0.054305 0.390559 -0.139045 0.8929
LNX1*LNX4 -0.013661 0.012214 -1.118414 0.2958
LNX2^2 -0.022381 0.074171 -0.301748 0.7705
LNX3^2 0.027403 0.194310 0.141027 0.8913

R-squared 0.535865 Mean dependent var 0.001458

Adjusted R-squared 0.187763 S.D. dependent var 0.001920
S.E. of regres sion 0.001731 Akaike info criterion -9.575708
Sum squared resid 2.40E-05 Schwarz criterion -9.245285
Log likelihood 78.81781 Hannan-Quinn criter. -9.579228
F-statistic 1.539391 Durbin-Watson stat 2.430886
Prob(F-statistic) 0.279134

H0: No heteroscedasticity (Homoscedasticity)

H1: Autocorrelation
P = 0.2353 (>0.05), not significant at 5% significance level.
Fail to reject H0, there is no heteroscedasticity in the model.

d. Test at 1% significance level if the errors are normally distributed.

7
Seri es: Residual s
6 Sample 1 15
Obse rvations 15
5
Mean -3.79e-15
4 Median -0.005671
Maximum 0.067277
3 Minimum -0.075208
Std. Dev. 0.039521
2
Skewness -0.026242
1 Kurtosis 2.619902

0 Jarque-Bera 0.092018
-0.10 -0.05 0.00 0.05 Probability 0.955033

H0: Normal distributed

H1: Not normal distributed
P = 0.9550 (>0.01), not significant at 1% significance level.
Fail to reject H0, the model is normal distributed.

e. Test whether the model specification is correct and stable at 1% significance level.
Ramsey RESET Test
Equation: UNTITLED
Omitted Variables: Squares of fitted values
Specification: LNY C LNX1 LNX2 LNX3 LNX4

Value df Probability
t-statistic 1.484871 9 0.1717
F-statistic 2.204841 (1, 9) 0.1717
Likelihood ratio 3.286820 1 0.0698

F-test summary:
Sum of Sq. df Mean Squares
Test SSR 0.004303 1 0.004303
Restricted SSR 0.021866 10 0.002187
Unrestricted SSR 0.017564 9 0.001952

LR test summary:
Value
Restricted LogL 27.69732
Unrestricted LogL 29.34073

Unrestricted Test Equation:

Dependent Variable: LNY
Method: Least Squares
Date: 04/14/22 Time: 13:59
Sample: 1 15
Included observations: 15

Variable Coefficient Std. Error t-Statistic Prob.

C -310.0642 187.3634 -1.654882 0.1323

LNX1 -3.952843 3.008812 -1.313755 0.2214
LNX2 4.778317 2.734791 1.747233 0.1145
LNX3 -0.040192 0.469261 -0.085650 0.9336
LNX4 35.57970 21.26893 1.672848 0.1287
FITTED^2 -0.717872 0.483458 -1.484871 0.1717

R-squared 0.988050 Mean dependent var 5.210477

Adjusted R-squared 0.981411 S.D. dependent var 0.324007
S.E. of regression 0.044176 Akaike info criterion -3.112097
Sum squared resid 0.017564 Schwarz criterion -2.828877
Log likelihood 29.34073 Hannan-Quinn criter. -3.115114
F-statistic 148.8238 Durbin-Watson stat 2.395544
Prob(F-statistic) 0.000000

H0: No mis-specified
H1: Mis-specified
P = 0.0698 (>0.01), not significant at 1% significance level.
Failed to reject H0, there is no mis-specified in the model.
Question 2

Consider the following EViews’ output for an auxiliary regression:

Test Equation:
Dependent Variable: RESID^2
Method: Least Squares
Sample: 1980 2016
Included observations: 37

Variable Coefficient Std. Error t-Statistic Prob.

C -0.026123 0.053191 -0.491115 0.6273

LL^2 0.014859 0.013959 1.064436 0.2966
LL*LR -0.024856 0.038021 -0.653762 0.5188
LL*LCO -0.020506 0.011025 -1.859926 0.0738
LL 0.014214 0.042722 0.332715 0.7419
LR^2 0.021081 0.041863 0.503568 0.6186
LR*LCO 0.007467 0.016840 0.443384 0.6610
LR -0.021494 0.058899 -0.364924 0.7180
LCO^2 -0.007545 0.004057 -1.859575 0.0739
LCO 0.041021 0.027378 1.498294 0.1457

R-squared 0.352525     Mean dependent var 0.000963

Adjusted R-squared 0.136700     S.D. dependent var 0.001042
S.E. of regression 0.000968     Akaike info criterion -10.81697
Sum squared resid 2.53E-05     Schwarz criterion -10.38159
Log likelihood 210.1140     Hannan-Quinn criter. -10.66348
F-statistic 1.633385     Durbin-Watson stat 2.176753
Prob(F-statistic) 0.155642

Based on the White’s General Heteroscedasticity test, identify and explain whether
there is a heteroscedasticity problem at 5% significance level.

H0: No heteroscedasticity (Homoscedasticity)

H1: Autocorrelation

Chi-square= n x R2= 37 x 0.3525= 13.034

X2 df= X2 9= 16.919

Fail to reject H0 since the Chi-square statistic is smaller than the Chi-square critical value.
There is no heteroscedasticity in the model.