HW2A - Econ 444 Elementary Econometrics (Winter 2010)...

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Econ 444 Elementary Econometrics (Winter 2010) ANSWERS TO HOMEWORK EXERCISE: 2 1. (1.a) False. The stochastic error term ± i is for the population regression and is not directly observable unless the population regression is, while the residual is for the sample regression and can be computed from a sample. (1.b) False. Only the sum of residuals N i e i ( with no rounding off error) is 0 but indvidually the OLS resdiual e i may or may not equal to 0. 2. Calculations for this question are summarized below : i X i Y i ( X i - X ) ( Y i - Y ) ( X i - X )( Y i - Y ) ( X i - X ) 2 1 9 21 -3.33 7.34 -24.4422 11.0889 2 12 16 -0.33 2.34 -0.7722 0.1089 3 16 4 3.67 -9.66 -35.4522 13.4689 Sum 37 41 0.01 0.02 -60.6666 24.6667 (2.a) ˆ β 1 = - 60 . 66 / 24 . 66 = - 2 . 46. ˆ β 0 = 13 . 66 - ( - 2 . 46) × 12 . 33 = 43 . 99 or 44. (2.b) Sample Regression equation is : ˆ Y i = 43 . 99 - 2 . 46 X i We got ˆ β 1 = - 2 . 46. This means if we increase the price of CD by 1 dollar then demand will go down by roughly 2.46 dollars. This result is consistent
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HW2A - Econ 444 Elementary Econometrics (Winter 2010)...

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