Fall 2003 - Ramanathan's Class - Exam 1

Fall 2003- - Econ 120C Fall 2003 Ramu Ramanathan First Midterm answers I Consider the model Yt = 1 2Xt 3 St ut where Y = per-capita expenditure on

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Econ 120C Ramu Ramanathan Fall 2003 First Midterm answers I. Consider the model Y t = b 1 + b 2 X t + b 3 S t + u t , where Y = per-capita expenditure on health care, X is per-capita personal income, and S is the percent of seniors (that is, percent of population 65 years or over). Using data for the U.S. states and the District of Columbia (51 observations), the model was estimated by OLS, and the auxiliary regression for testing for heteroscedasticity is given next (it had R 2 = 0.417). 2 2 003 . 0 063 . 0 017 . 0 683 . 0 619 . 6 ˆ t t t t t S S X X u - + + - = Ia. (3 points) Write down in symbolic terms the auxiliary equation that specifies how heteroscedasticity is determined. In it write down the null hypothesis of homo- scedasticity. Note that your equation should not have any numerical values. t s = 1 a + 2 a X t + 3 a 2 t X + 4 a S t + 5 a S 2 t H 0 : 2 a = 3 a = 4 a = 5 a = 0 Ib. (5 points) Compute the test statistic, state its distribution under the null and d.f., carry out the test at the 1 percent level, and state your conclusion about homo- /heteroscedasticity in words. LM = nR 2 = 51 · 0.417 = 21.267. Under H 0 LM has the Chi-square distribution with 4 d.f. For a 1 percent test, the critical value is LM* = 13.2767.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/21/2008 for the course ECON 120C taught by Professor Stohs during the Spring '08 term at UCSD.

Page1 / 3

Fall 2003- - Econ 120C Fall 2003 Ramu Ramanathan First Midterm answers I Consider the model Yt = 1 2Xt 3 St ut where Y = per-capita expenditure on

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online