7ECON001W: Data Analysis - Westminster Business School - LGFDHO - LGEXP - LGSIZE - Coursework Assessment Answer

Subject Code: 7ECON001W Internal Code: 1AIFAE

Coursework Assessment Answer

Assignment Task: 7ECON001W Resit Coursework  Submission Instructions 1. Only an electronic copy should be handed-in via the Blackboard site of the module. This copy will automatically be scanned through a text matching system (designed to check for possible plagiarism). 2. To avoid mark penalisation for late submission ensure you submit your coursework in time according to the deadlines above. See course handbook for details on mark penalisation for late submission. 3. The name and the registration number of the student should be clearly shown on the page of the assignment. General Instructions 1. This coursework is INDIVIDUAL. 2. Provide and explain all calculations and relevant EViews outputs. 3. Use a sign...chance level of 5% for all tests. 4. Presentation is worth 10% of the total coursework marks — note that a good presentation requires clear and concise answers avoiding redundant information. 5. Word limit: 3,000 (footnotes and appendices do not count for the word limit). 6. The coursework is worth 30% of the total module mark. A qualifying mark of a minimum of 35% is required in this piece of assessment to pass the module. Question The EViews ...le "Resit_CW_Data.wf1" in the Blackboard folder Assessment contains cross-sectional data on the logarithm of annual household expenditure on food eaten at home, LGFDHO, the logarithm of total annual household expenditure, LGEXP, and the logarithm of the number of persons in the household, LGSIZE, for a sample of 90 households in the 2005 Consumer Expenditure Survey. 1Using this data set answer all following questions: 1. Regress the variable LGFDHO on variables LGEXP and LGSIZE (remember to include a constant in the model). (a) Interpret the coe¢ cient estimates of that regression including the estimated intercept. Has the estimated intercepted an economic meaning? Explain your answer. (b) Perform tests for the statistical signi...cance of the parameters of the independent variables using the critical value of the corresponding t-distribution and the test p-value. Provide an interpretation of the results of the tests. Questions 2 to 14 below refer all to the model in question 1: 2. Perform a joint signi...cance test for the independent variables of the model using both the p-value and the critical value of the F-distribution. [6 marks] (a) Comment on the goodness-of-...t of the model. (b) What are the consequences of the results of this F-test together with those of the t-tests (in question 1) for the speci...cation of the model? Explain your answer. 3. Test the hypothesis of that the variable LGEXP is one third the e¤ect of variable LGSIZE, on variable LGEXP. (a) Use the command available in EViews to test for the corresponding coe¢ cient restriction. (b) Perform the test analytically, providing all steps to obtain the restricted model and the ...nal test conclusion. (c) Explain/interpret the test results. 4. Answer the subquestions below on multicollinearity analysis in the model. (a) Test for multicollinearity between variables LGEXP and LGSIZE using regression analsyis. Explain your answer using EViews outputs. (b) Assuming that there is multicollinearity between those variables: i. Explain how you would resolve this problem using regression analysis. Explain your answer using EViews outputs. ii. What the consequences of multicollinearity are for the OLS estimator properties and its standard error? 5. Perform a graphical analysis to detect the presence of heteroscedasticity in the model using two di¤erent types of plots. (a) Do you ...nd evidence of heteroscedasticity? information obtained from each type of plot. Explain your answer using the (b) Explain the consequences of heteroscedasticity on the properties of the OLS estimator. 6. Perform a White test for heteroscedasticity. (a) Explain and interpret the meaning of the null hypothesis of this test. (b) Why is the White test preferred to the Breusch-Pagan test for heteroscedasticity. Explain your answer. (c) Would the Goldfeld-Quandt test for heteroscedaticity provide more accurate results than the White test? Explain your answer. 7. Assume that there is heteroscedasticity of the form: 2 u t = 2 u (LGSIZE t ) 4=3 : How would you resolve the problem of heteroscedasticity? Explain your answer analytically. 8. Estimate the model using White’s autocorrelation and heteroscedasticity consistent standard errors. (a) Compare the results of that estimation (parameter estimates and their standard errors) with the estimation results obtained in question 1. (b) When do we use White standard errors? Explain your answer. 9. Provide a graphical analysis of the residuals to detect the presence of autocorrelation using di¤erent types of plots. [5 marks] (a) Do you ...nd evidence of autocorrelation? information obtained from each type of plot. Explain your answer using the (b) Explain the consequences of autocorrelation on the OLS estimator properties. 10. Test for autocorrelation in the residuals of the model using an appropriate procedure. What conclusion on the speci...cation of the model could you extract from your results? 11. Assuming that there is autocorrelation in the residuals of the model: (a) Use EViews to perform the Cochrane-Orcutt (C-O) procedure to resolve autocorrelation of order 1. Comment on the results in the EViews output, estimates and standard errors in relation to their counterparts in question 1, AR(1) coe¢ cient and iterations to converegence. (b) Explain analytically step by step the C-O procedure to resolve ...rst-order autocorrelation in the model of question 1, assuming that the coe¢ cient of autocorrelation in the residuals is unknown. 12. Perform a Box-Cox test for the model functional form (linear, semi-logarithmic and logarithmic). 13. Test the assumption of normality in the residuals of the selected model in question 12 by using the Jarque-Bera (JB) tests. Comment on the implications of your JB test results on the properties of the OLS estimator. 14. For what purpose could your model in this coursework be used by the director of a multinational chain of restaurants?

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