RIFT Valley University

College of Business and Economics

Department of Economics
Introduction to ECONOMETRICS for finance Group assignment

1. The following data refers to the demand for money (Y) and the rate of interest (X) in for eight
different economies:
Y (in billions) 56 50 46 30 20 35 37 61
X% 6.3 4.6 5.1 7.3 8.9 5.3 6.7 3.5
A. Assuming a relationship Yi    X i   i ; obtain the OLS estimators of  &  .
B. Determine TSS, ESS & RSS of the sample data.
C. Calculate the coefficient of determination (R2) for the data and comment on Goodness of Fit.
D. Test the statistical significance of the slope parameter estimate of  if H0: 0= 0 Vs H1: #0 at 5% level
of significance & make inference as to whether you reject or accept the null hypothesis (using t – test).
2. The following data refers to the price of a good ‘X’ and the quantity of the good supplied, ‘Y’.
X 2 7 5 1 4 8 2 8
Y 15 41 32 9 28 43 17 40
A. Estimate the linear regression line E(Y )    X .
B. Determine TSS, ESS & RSS of the sample data.
C. Estimate the standard errors of  &  .
D. Test the hypothesis that price influences supply (using t – test).
E. Obtain the 95% confidence interval for  and 
3. The following table includes the GNP(X) and the demand for food (Y) for a country over ten
years’ period.
Y 6 7 8 10 8 9 10 9 11 10
X 50 52 55 59 57 58 62 65 68 70
A. Estimate the food function.
B. Find the explained and unexplained variation and Compute the coefficient of determination
C. Compute the standard errors of the estimates
D. Conduct test of significance of the estimates at 5% level of significance (using t – test).
E. Obtain the 95% confidence interval for  and 
4. In pedagogical sciences, it is believed that providing as many exercises as possible to students
will sharpen their level of understanding and improve their cognition and skill in particular
courses. In order to assess and judge the contribution of the exercises in the overall
performance of students, department of Economics have instructed 10 Economics students
randomly to submit their answer papers on the two home-take exercises they had in
Econometrics without prior notice; selected their final exam; and graded them out 20% and
80%, respectively in 2010 at Jimma University. The achievements of the sampled students in
the exercises and final exam are shown in the table below.

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 Average score in two exercises (X) 18 6 18 4 14 20 8 12 2 10
Score in final exam (Y) 72 40 78 10 64 56 24 32 16 48
Given the information in the table the linear regression model is formulated as
Yi    X i   i
A. Find the estimated final exam achievement linear regression function.
B. Compute the standard errors of the regression parameter estimates.
C. Determine the coefficient of determination and the correlation coefficient between Y and X; that
is ryx.
D. Test the statistical significance of the slope parameter estimate of 𝛽 if H0: 𝛽 = 0 Vs H1:
𝛽#0 at 1% level of significance and make inference as to whether you reject or accept the
null hypothesis.
E. Suppose a predicted 11th student’s score in final exam is 88, determine his/her average
score in the two exercises.
5. The following results have been obtained from a sample of 11 observations on the values of sales
(Y) of a firm and the corresponding prices (X).

X = 519.18 Y = 217.82  X Y = 1,296,836  X 2

=3,134,543 Y =539,512
2
ii i i

i. Estimate the regression line of sale on price and interpret the results.
ii. Determine TSS, ESS & RSS of the sample data.
iii. Estimate the standard errors of  &  .
iv.Test the hypothesis that price influences supply (using t – test).
6. A sample of 20 observations corresponding to the regression model Yi    X i   gave the
following data: i
 Y
i
 21.9;  X
i
 186.2;  (X 
i
X )(Y Y
i
)  106.4;  (Y
i
Y ) 2
=86.9 &  (X  X )2 =215.4
i

A. Estimate  & 
B. Determine TSS, ESS & RSS of semi – processed data.
C. Calculate the variances of both estimates.
D. Conduct test of significance of the estimates at 5% level of significance (using t – test).
E. Estimate the conditional mean of Y corresponding to a value of X fixed at X=10.
7. Suppose that a researcher estimated a consumption function and obtained the following results:
C=15 + 0.81Yd n = 19
(3.1) (18.7) R2 = 0.99
Where C=consumption, Yd=disposable income, and numbers in the parenthesis are‘t-ratios’.
A. Interpret the results of the estimated model.
B. Comment on Goodness of Fit of the model.
C. Test the significance of the coefficient of Yd statically using t-ratios.
D. Determine the estimated standard deviations of the parameter estimates.
E. Estimate the conditional mean of C corresponding to a value of Yd fixed at Yd =5000.
8. Suppose a friend of yours has estimated a simple linear regression function for 30 observations and
obtained the following regression line and intermediate result:
Yi  6.51.3Xi , and
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 30 30 30 30 30

y
e
2
2
133 x 2
 500 y 2
 978 ;Where, the values of x 2
&  are the sum of squared
i i i i i
i1 i1 i1 i1 i1

deviations from their mean. Determine:

A. The coefficient of determination (R2).
30

B. The deviated value of x y

i1
i i

C. The variance of the estimated coefficients; ˆ and ˆ

D. Conduct test of significance of the estimates at 1% level of significance (using t – test).

9. Suppose the estimated regression model of quantity supplied (S) on own price (P), ceteris paribus,
obtained from eight sample size is reported as:
` S  6.99  4.57P  e R 2  0.29
i i i

(15.38) (2.89)
The numbers in parentheses represent standard errors.
A. Interpret the results of the estimated model.
B. What are the proportions of both the total variations in quantity supplied (S) explained and unexplained by
the regression model? Comment on the fitness of the estimated model
C. Test the significance of the coefficient parameter at 5% level of significance as H 0: 𝛽 = 0 against H1: 𝛽#0
D. Construct the 95% confidence interval for the coefficient parameter.
E. Estimate the conditional mean of S corresponding to a value of P fixed at P=1000.

TOGETHER WE CAN !!!!! Page 3

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TOGETHER WE CAN !!!!! Page 4