Homework 4

Homework 4 - Mehmet Soytas Wednesday, June 10, 2009 Applied...

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Mehmet Soytas Applied Econometrics I, Summer, 2009 Wednesday, June 10, 2009 (due: Wednesday, June 17, 2009) Homework Assignment 4 1. State whether the following statements are TRUE or FALSE (Provide an explanation in either case). a. The interpretation of the slope coe¢ cient in the model Y i = & 0 + 1 ln( X i )+ u i is that 1% change in X i is associated with a 1 % change in Y i . b. Including an interaction term between two independent variables, X 1 i and, X 2 i allows for that the interaction term lets the e/ect on Y i of a change in X 1 i depend on the value of X 2 i . omitted from the regression, the assumption that E ( u i j X i ) = 0 is violated. This implies that the OLS estimator is no longer consistent. d. To decide whether ln( Y i ) = & 0 + 1 ln( X i ) + u i or Y i = & 0 + 1 ln( X i ) + u i you cannot consult the regression R 2 because R 2 e. In the regression model Y i = & 0 + 1 X i + 2 D i + 3 ( D i X i ) + u i , where X i is a continuous variable and D i is a binary variable, 3 indicates the slope of the regression when D i = 1 . f. In the model Y i = & 0 + 1 X 1 i + 2 X 2 i + 3 ( X 1 i X 2 i )+ u i , the expected e/ect Y X 1 is 1 + 3 X 1 i . g. A statistical analysis is internally valid if a its inferences and conclusions can be generalized from the population and setting studied to other populations and settings. h. In the Fixed E/ects regression model, you should exclude one of the binary variables for the entities when an intercept is present in the equation. to use ( n + T ) binary variables where n for the entities and T for time periods. j. Instrument relevance means that the instrument is one of the determinants of the dependent variable. k. Consider a competitive market where the demand and the supply depend on the current price curve. 2. Northeast Region of the United States (Maine, Vermont, New Hampshire, Massachusetts, Connecticut and Rhode Island) for the period 1991 ± 2001 . If Beer Tax was the only explanatory variable. a. How many coe¢ cients would you need to estimate?

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This note was uploaded on 07/02/2009 for the course ECON 1150 taught by Professor Staff during the Summer '08 term at Pittsburgh.

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Homework 4 - Mehmet Soytas Wednesday, June 10, 2009 Applied...

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