Introduction to Econometrics
Professor Alexei Onatski
Problem Set 7
November 11
Suggested Solutions
Question 1
)
a
)
The coe¢ cient on "
# of bedrooms
" implies that, everything else constant, an additional
bedroom increases rent by
$100
, on average.
b
)
The coe¢ cient on the interaction "
(Living Space)
±
(Dummy for studios)
" captures the di/er
ential e/ect of living space on rents between studios and regular apartments. In particular,
the e/ect of an increase in one "living space" unit on rents is
$7
for studios while only
$3
for
other apartments.
c
)
We want to test the following hypothesis:
H
o
:
(
Living Space
)
(
Dummy for studios
)
= 0
Observe that, if we knew
SE
(
b
(
Living Space
)
(
Dummy for studios
)
)
;
we could test the null by
simply computing the
tstatistic
for this hypothesis,
i.e.
,
t
=
b
se
(
b
)
. Alternatively, we can also
test this hypothesis by using a
Ftest
:
F
=
(
SSR
restricted
SSR
unrestricted
)
=q
SSR
unrestricted
=
(
n
k
1)
;
where we know that
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 Fall '09
 Natski
 Econometrics, Jim Crow Laws, White American, Southern United States

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