ps5_solution.pdf

# ps5_solution.pdf - PROBLEM SET 5 SOLUTION(1(c(2(a and(d(3(i...

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PROBLEM SET 5 SOLUTION (1) (c) (2) (a) and (d) (3) (i) False. To calculate OLS estimators, we need X to have full column rank, which is violated. (ii) False. The marginal effect of x on y is β 1 + 2 β 2 x , which does not equal to β 1 if β 2 6 = 0 and x 6 = 0 . (iii) False. This property always holds if there is an intercept term. (iv) False. R 2 never decreases by adding regressors. (4) ˆ β 1 ˆ β 2 ! = n i =1 x 2 i 1 n i =1 x i 1 x i 2 n i =1 x i 1 x i 2 n i =1 x 2 i 2 ! - 1 n i =1 x i 1 y i n i =1 x i 2 y i ! = 10 10 10 30 ! - 1 10 30 ! = 0 1 ! (5) (i) The constant elasticity equation is 1

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(ii) We cannot include profits in logarithmic form because profits are negative of the nine companies in the sample. When we add profits in levels form, we get The coefficient on profits is very small. R 2 = 0 . 299 , these variables (and we could drop profit without losing anything) explain almost 30% of the sample variation in lsalary
• Spring '16
• ozerturk
• Equals sign, Plus and minus signs, Xi2

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