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Key - Problem Set 5 - 2011

# Key - Problem Set 5 - 2011 - Problem Set 5 Econometrics I...

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Problem Set 5 Econometrics I Resource Economics 702 1. Consider the following model of the aggregate US production: 3 1 2 4 exp t u t t t t t Y AK L E M ; where: Y t is an index of total US output in year t; K t is an index of capital input for year t; L t is an index of labor input for year t; E t is an index of energy input for year t; and M t is an index of materials input for year t. Data are on the course website and in the text (Table 9.10). (1) a. Estimate the population parameters using OLS. Interpret the estimates for the population parameters 1 2 3 4 , , , and . Do the estimates have the expected signs? The estimates are shown in the SAS output below. The REG Procedure Model: MODEL1 Dependent Variable: lny Number of Observations Read 25 Number of Observations Used 25 Analysis of Variance Sum of Mean Source DF Squares Square F Value Pr > F Model 4 1.35654 0.33913 98.55 <.0001 Error 20 0.06882 0.00344 Corrected Total 24 1.42536 Root MSE 0.05866 R-Square 0.9517 Dependent Mean 0.37725 Adj R-Sq 0.9421 Coeff Var 15.55004 Parameter Estimates Parameter Standard Variance Variable DF Estimate Error t Value Pr > |t| Inflation Intercept 1 0.03516 0.04393 0.80 0.4329 0 lnk 1 0.05607 0.25927 0.22 0.8310 32.45951 lnL 1 0.22631 0.44269 0.51 0.6148 37.35267 lne 1 0.04358 0.38989 0.11 0.9121 76.81764 lnm 1 0.66962 0.36106 1.85 0.0785 62.09678 All estimates are elasticities: a 1% increase in capital input results in a 0.056% increase in output, holding labor, energy and materials constant; a 1% increase in materials results in a 0.67% increase in output, holding capital, labor and energy constant; etc.

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