Using the data provided for the four equation macro model we have been using, examine the consumption function: CO = β1+ β2 YD + β3 CO(-1) + ε
economics
Description
Econometrics
Midterm
220:403
Spring 2020,
4/15/2020
The value of
each question is shown within parentheses.
Forward your answers to me by email.
They must arrive by Wednesday, 4/16/2020, 10:00 am (Newark, NJ time).
1.
Using the
data provided for the four equation macro model we have been using, examine the
consumption function: CO = β1+ β2 YD + β3 CO(-1) + ε
REMEMBER TO INDICATE YOUR NULL AND
ALTERNATIVE HYPOSTHESES AND SIGNIFICANCE LEVEL IF WARRANTED.
SHOWING
ALL WORK NEATLY AND IN AN ORDERLY READABLE WAY (indicating the relevant test):
i.
(5 pts) Estimate
the above equation using all the data with OLS
ii.
(5 pts)
Examine for normality of the error term - jarque bera
test
iii.
(10 pts) Examine for multicollinearity - VIF
iv.
(10 pts) Examine for heteroscedasticity – white test
v.
(10) Examine for serial correlation – H Test
vi.
(15)
Examine for the violation of the Full Ideal Conditions using the Ramsey
(RESET) Test
2.
(20) Re-estimate the above consumption function
with Two Stage Least Squares using all the possible instruments (including a
constant). Note: there are five
exogenous variables – not counting the constant term.
3.
(5) What
is a major problem using VIF to detect multicollinearity. (One to three short sentences are all that is
needed.
4.
(10) What
is the major point of the Peltzman paper regarding the effect of regulation on
crash related fatalities. (One short
paragraph (maybe just up to three sentences) is all that is needed.)
5.
(10) Consider the Demand and Supply model below
where QD is the quantity demanded and QS is the quantity
supplied; P is price:
QD
= β1 + β2 P +
ε and
QS = α1 + α2
P +
µ
ε and µ are the error terms.
The model as is
cannot be identified. Redesign the model
so both equations are over-identified using the minimum number of instruments
and defining any terms.
