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ps7_sol

# ps7_sol - Introduction to Econometrics Professor Alexei...

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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 t-statistic for this hypothesis, i.e. , t = b se ( b ) . Alternatively, we can also test this hypothesis by using a F-test : F = ( SSR restricted SSR unrestricted ) =q SSR unrestricted = ( n k 1) ; where we know that

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ps7_sol - Introduction to Econometrics Professor Alexei...

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