UBEQ2023 Econometrics June 2023/2024

UNIVERSITI TUNKU ABDUL RAHMAN

FACULTY OF BUSINESS AND FINANCE
ACADEMIC YEAR 2023/2024

TUTORIAL 3 & 4

Discussion Questions:

1. Suppose you collect data from a survey on wages, education, experience, and gender
where wages is measured in Ringgit Malaysia per month. Education indicates the year
of schooling and experience displays the years of working experience. In addition, you
ask for information if the respondent is a member of a professional body.

a. Write an equation that would allow you to estimates of professional body’s

membership on wage, while controlling for other factors. You should be able to
make statement such as, “the membership of professional is estimated to change
wage by x%.”

ln wage   0  1 ln educationi   2 ln exp eriencei   3 Malei   4 Membershipi   i

b. Write an equation that would allow you to test whether membership of profession
body has different effects on wages for men and women. How would you test that
there are no differences in the effects of membership of professional body for men
and women.

ln wage   0  1 ln educationi   2 ln exp eriencei   3 Malei   4 Membershipi

  5 Membership.malei   i
⑦ we should perform the f tef :
B
-

①
H 0 B5 = 0 α=
—
0 . 05 的 sumingtcvi 、 ④
pejetH 。 iff , fef< 1
Cl f - fesf
☆( )
fesf
: 后
t > OEU
2 1 96 or ,

rejecy
-

β 510
.

H 1
: = 0 .

025 ofherwise , do mof

2. What is dummy variable trap? How do we avoid it? Explain by examples.
perfect mwlticolinearity
ebact relafiomship
The
olummy variaBle fra
1 } is
( penfeot mulfi collinearttly iffherr
the sifu atioan of perfect Collinearithy shaM GMOngfhh
, is more ore Wariaable

3. Consider the following estimated model:

total
femole
𝑌 950 200 𝑀𝑎𝑙𝑒 0.76 𝐼𝑛𝑐𝑜𝑚𝑒 (Model 1)
troomale ; t o .

A6 in come
950
Y

pincm
=

rmale where Y is the monthly spending (in RM), Male = 1 if male, 0 otherwise, Income is the
"
⑩ "

E
tae

Tppxnimbprtins
⼀
…
monthly income and i refers to the i-th respondent.

a. Sketch Model 3 to show the spending differences between male and female.

"
b. Can you assign another dummy variable to indicate female in Model (1)? What is
estimated value for its estimates? Interpret.

d Yi Incomes ff
fimalet " 56 Malei950fo ceferis 1
-
:

On average , the spending of female is RM paribus ,

 assign anothe dummyvaviables toindicate female
Yesb
,
we can ,

buf wecannofindude intercepf any mone .

950 fem ale 50 malet

f income .to
9
:
i , o

paribus
spending of female
ceferis
,

the
5. RMa 50
On average
,

On
 UBEQ2023 Econometrics June 2023/2024
Y β oL Kk ~µ
"
:

4. What is an intrinsically linear and intrinsically nonlinear regression models? Give some
examples.

Y B
=

。
LBKP >µ
5. Suppose that Tan Jason attempts to use the logistic model (Model 2) to study the adoption
of database management software among the selected 100 industries. The dependent
variable, Yi denotes as the fraction of firms in the industry that have adopted the
software, where this variable has value between 0 (no adoption) and 1 (100% adoption).
X i describes an industry characteristic and  i is the random error term.

Yi 
1
errorx
1  e   0  1 X i 
addictue
 i
term
Model 2

Based on your econometrics knowledge, provide your advice and reasoning to him on
how to linearize and estimate the parameters in Model 2. 1 relatronship between the
to the
constaint parameters
due non inear
model has
-

2 ho
model 2is intrinsicaly non
dependent type of nim for
-

and in dependent variable . The

model . The parameter in model cannot linearlized

be
anyansformation
by

regression
2
linear

6. Wendy intends to study the medical hand gloves production in Malaysia. With the data
that provided by the fifty factories, she decided to estimate a Cobb-Douglas production

gestav
term
” model as below: with mutfiplicafiue eror

p 𝑌 𝛽X X 𝑒 0 (Model 3)

⼀ where Y is the output, X2 represents the labor input, and X3 represents the capital input.

a. Can Wendy estimate Model 3 by Ordinary Least Squares (OLS)? Are the OLS
estimators unbiased, efficient, and consistent? Explain.
estimators are BLUE iased andeffichent
0 rs
besf lhnearunb ,

b. Assuming Wendy obtains estimates of β2 = 0.45 and estimates of β3= 0.55. How do
you interpret these results? How do you test if they are significant?

β rluXri +β slnsix tln

t w
lnYi =
ln β ,

ln β it 6 45 ln ) l" f rblnx3 itlnv

.

o .

=
.

= + BslnXsitlu u
lu {i luBi Brluxri
' -
+

0 55lnXsit lnM
:
ln to 45luXrit
↑
.
.

2
 4. What is an intrinsically linear and intrinsically nonlinear regression
models? Give some examples.

underlying

⑤ model the linear relationsip betweeh the

has constaint para meters due to non .

2 no

for model
is intrinsically non
type of
2

dependent
-

and independent variable . The nrm

linearlized by
cannot be
linear regression model . parameter in model
The 2 any
transform ation due to adthe diclive error ferm ,
we
may usetry
an error all the wlls method to esimated model 2 .

⑥ Yes wendy can estimate Model

,
3whenohly
by ois
after Tnearlised the model .