Econometrics II

Assignment # 2

Course Instructor: Dr. Fouzia Sohail

T.A: Ms. Umama & Ms. Kanwal

Due Date: 16-03-2022

1. Perform hypothesis testing for each population parameters in your model separately by using T-
test. Show complete working.

Our hypothesis test will be considered as:

H 0 :=0
H1: 0
The general equation of T- test is:
β j−❑ j
T −test =
S. E βj
Is the slope of population parameter.
Is the value of Η ο in the case of T-test it’s always zero.
So, the formula of T-test will be
βj
T −test =
S. E βj
For Income:
0.1086009
T −test = =1.527832
0.0710817
For Family Size:
65.18628
T −test = =0.2937832
221.8857
For Education of House Hold Head:
142.6169
T −test = =1.246507
114.4132
For Age of House Hold Age:
−0.8013557
T −test = =−0.0161129
49.73371

2. Check your results of question 1 with that obtained through STATA output. Interpret the results
of t-test (separately for each independent variable) through p-values.

To test our critical value, we must know 2 things:

a. Degree Of Freedom (In my model df=95)

b. Significance level at 1% and 5% using 2 tail tests. (At 1% = 2.615 and At 5% = 1.980)
 By using the command: “reg sav inc size educ age”, We get the results in 2nd table that is:

sav | Coef. Std. Err. t T-test P>|t| Results of

---------------------+--------------------------------------------------------------- Ho=0 At 5%
inc | .1086009 .0710817 1.53 1.527832 0.130 Accept
size | 65.18628 221.8857 0.29 0.2937832 0.770 Accept
educ| 142.6169 114.4132 1.25 1.246507 0.216 Accept
age | -.8013557 49.73371 -0.02 −0.0161129 0.987 Accept

In the table we can see that the generated values of Stata are the round off of the values we
calculated through t-test formula and the results of Ho lies in acceptance region. In short, we
can say that none of the values are statistically significant at the 0.05 level. Therefor the results
of P-values are not lies in acceptance region that’s why we cannot reject the null hypothesis for
any of the independent variables.

3. Construct the diagram for two sided alternatives indicating the values of t-statistics and p-
values.

4. Perform F-test for determining the overall significance of regression by firstly stating the
restricted and unrestricted models for your data.

Unrestricted Model is:

Y = β0 + β 1 X 1 + β 2 X 2 + β 3 X 3 + β 4 X 4 + μ
Restricted Model will be:
Y = β0 + μ
The formula we use:
 SSR R−SS RUR
q
F=
SS R UR
n−k −1
OR
2 2
RUR −RR
q
F= 2
1−R UR
n−k −1
Because we restricted all independent variables the F- test will be:
2
RUR
q
F= 2
1−R UR
n−k −1
0.0812
4
F= =2.09893339
1−0.0812
100−4−1

5. Compare the results obtained in question 4 with STATA output and interpret your results in the
light of p values
By using “reg sav inc size educ age” command we get:

Source SS Df MS No, of Obs = 100

F (4, 95) = 2.10
Model 86789092.4 4 21697273.1 Prob > F = 0.0868
Residual 981478505 95 10331352.7 R-Squired = 0.0812
Adj R-Squired = 0.0426
Total 1.0683e+09 99 10790581.8 Root MSE = 3214.2
Here we can see the Calculated and Stata results are same and the F-test performed has the null
hypothesis that all the coefficients in regression model are equal to zero, while the alternative
hypothesis is that at least one coefficient is different from zero.
In my Model the p-value of 0.0868 is above the common 0.05 significance level, we do not have strong
evidence to reject the null hypothesis. Therefore, we cannot conclude that at least one coefficient is
different from zero.