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Econometrics Assignmnent

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Econometrics Assignmnent

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edulhalefom15
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Addis Ababa University

College of Business and Economics


Department of Economics
Assignment for Econometrics I (20%)
1. Suppose you are a third-year student at the Department of Economics, Addis Ababa
University and you are undertaking research on the determinants of consumption
expenditure in Addis Ababa University employees. You collected annual data on Income
(X1), Wealth (X2) and Consumption Expenditure (Y) from 30 employees and obtained the
following results.
∑ 𝑌 = 360 ∑ 𝑦 2 = 448.36 ∑ 𝑥1 𝑦 = 660.8 ∑(𝑒𝑡 − 𝑒𝑡−1 )2 = 1.86 ∑ 𝑒𝑡2
∑ 𝑋1 = 519 ∑ 𝑥12 = 1026.8 ∑ 𝑥2 𝑦 = 792.95
∑ 𝑋2 = 636 ∑ 𝑥22 = 1577.8 ∑ 𝑥1 𝑥2 = 1202
a) Run the regression equation of Y on 𝑋1 and 𝑋2 and give economic meaning of the
coefficients (4 Pts).
b) Test and interpret the individual significance of the slope coefficients (3 Pts).
c) Test and interpret the overall significance of the model (2 Pts).
Suppose further that your research advisor told you to check for multicollinearity,
autocorrelation and heteroscedasticity tests before the analysis. Accordingly, you divided
your data into 13 small and 13 large samples and obtained the following results for the two
groups:

For small sample For large sample


∑ 𝑌 = 108.6 ∑ 𝑦 2 = 34 ∑ 𝑥1 𝑦 = 43 ∑ 𝑌 = 203.4 ∑ 𝑦 2 = 66 ∑ 𝑥1 𝑦 = 65
∑ 𝑋1 = 149.5 ∑ 𝑥12 = 62 ∑ 𝑥2 𝑦 = 56 ∑ 𝑋1 = 300.5 ∑ 𝑥12 = 83.6 ∑ 𝑥2 𝑦 = 63
∑ 𝑋2 = 183 ∑ 𝑥22 = 139 ∑ 𝑥1 𝑥2 = 74.8 ∑ 𝑋2 = 365.5 ∑ 𝑥22 = 113 ∑ 𝑥1 𝑥2 = 55.1

d) Test your data for multicollinearity using auxiliary regression and Variance Inflation
Factor (VIF) and give your conclusion (2 Pts)
e) Fit the regression equation for each sample and test your data for heteroscadesticity
using Goldfield-Quandt test at 5% significance level and comment on it (4 Points).
f) Test your data for autocorrelation using Durbin-Watson Test (3 Pts).
2. Suppose multiple linear regression model is given by 𝑌𝑖 = 𝛽0 + 𝛽1 𝑋1 + 𝛽2 𝑋2 + 𝑈𝑖 , then
𝛽 ∑ 𝑥 𝑦+𝛽 ∑ 𝑥 𝑦
Prove that 𝑅 2 = 1 1∑ 𝑦 22 2 (3 Points).
General Instructions:
• Any kind of plagiarism has no excuse.
• Submission date: January 31, 2022 @ 2:00 PM.
• Show your steps Clearly and Neatly.
• Maximum Group Size:10 students.
• Answers to be sent using [email protected].

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