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Microsoft Word - Assignment_Econ6034_Final.docx Econ6034 Econometrics and Business Statistics Individual Assignment (2020-s1) Total Marks 80 – Weighting: 30% The assignment relates to the following learning outcomes: • Apply basic statistical techniques to problems in economics and business • Use econometric tools to model, estimate and forecast economic data • Engage into further studies in econometrics • Demonstrate the ability to work effectively in a group Submission: • Submit your assignment via Turnitin by 4pm on Monday 1 June 2020 (week 13 of the semester) • The submission link will be available on iLearn towards the end of week 12 (Thursday 28th May 2020). • No extensions will be granted except for cases in which an application for Special Consideration is made and approved. • Late submissions will be accepted up to 96 hours after the due date and time. • There will be a deduction of 10% of the total available marks made from the total awarded mark for each 24-hour period or part thereof that the submission is late (for example, 25 hours late in submission incurs a 20% penalty). • Include following details in your submission file: Family Name, Given name, Your student ID number and the Econ6034_Assignment. • Type your assignment in MSWORD (font size 12) and save it as a pdf and submit your PDF document. No other format will be accepted. • Use Microsoft word equation editor to type your formulae or equation. The Following links may be helpful in getting started with the equation editor. • https://www.uwyo.edu/ceas/resources/current- students/classes/esig%20help/windows%20help%20files/microsoft%20office/ word-equations.pdf • https://www.officetooltips.com/word_2016/tips/working_with_microsoft_equ ation.html • You CANNOT submit the assignment in Handwritten or scanned formats. • Your answers must be preceded with the assignment questions and your answers must be in the same order. • Unless it requested in the question otherwise do not attach Eviews output. • If required, charts and output from EViews may be copied as an image into the document. • Marks will be deducted for poor quality presentation. • No appendices in your assignment. • Maximum pages 12 • You can ONLY submit ONCE to Turnitin. Plagiarism: • Each assignment must represent the student's own work. • The copying of another student's answer or textbooks, or part thereof, is clearly regarded as plagiarism. • Students who have plagiarised will be awarded a mark of zero, will not be permitted to resubmit, and may be reported to the University Disciplinary Committee for further action. • Students should be aware of the University’s Academic Integrity Policy and the Student Code of Conduct: https://students.mq.edu.au/study/getting- started/student-conduct Acknowledgement: � I agreed and submit my assignment. Assignment Questions Question 1 [46 marks] Suppose we wish to estimate the relationship between food expenditure and some of its determinants. The file Foodexp.xlsx contains 200 observations from a cross- section of households for the following variables. Foodexpi: Weekly expenditure on food (excluding restaurants) in dollars. Incomei: Weekly household income in dollars. Childreni: Number of dependent children living in the household. Retiredi: A binary (0/1) indicator of whether head of the household is retired {ret.=1}. (a) Consider a regression model ???????! = ?" + ?# log(??????!) + ?$?ℎ??????! + ?%???????! + ?! Estimate the model using Eviews and provide the summary results (A summary results should include fitted equation with coefficients, standard error, t-statistic, p-value, sample size, F-statistic and R-squared). [4 marks] (b) Interpret the coefficient estimates and their significance at the 5% significance level. [4 marks] (c) Does the sign of the coefficients agree with your expectations? Comment. [4 marks] (d) Based on the regression output, if Income increases by 10% what is the estimated change in Foodexp, holding Children and Retired constant. [4 marks] (e) Test the overall validity of the regression model at the 5% significance level. State the hypotheses, restricted and unrestricted model, test statistics and its distribution when null hypothesis is true, critical value and your conclusion. [4 marks] (f) Construct 95% confidence interval for ?#, the slope of the log(Income) variable and interpret your results. [4 marks] (g) Based on your answer in part (f), without performing a hypothesis test, would you reject the hypothesis ?": ?$ = 100,?#: ?$ ≠ 100. Explain? [4 marks] (h) Plot the least squares residuals against log(Income) and comment on the pattern. Is there any evidence of heteroscedasticity? [4 marks] (i) Test for the existence of heteroscedasticity at the 5% significance level. Use the Breusch-Pagan-Godfrey test and attach your Eviews results. Clearly states all steps in your test; null and alternative hypotheses, the auxiliary regression and the test statistic, critical value, your decision and the conclusion. [6 marks] (j) Re-estimate your model with robust standard errors and attach your Eviews output. Compare your results with the output in part (a). Comment. [4 marks] (k) Now run the following regression model: ???????! = ?" + ?# log(??????) + ?! (l) Compare your model that with part (a). Which model would you choose? And Why? [4 marks] Question 2 [34 marks] A researcher wants to analyse the relationship between the three-month T-bill rate, tb3, the annual inflation rate, inf based on the consumer price index, and the federal budget deficit, def as a percentage of GDP and develops the following model. The data is stored under the file name is intdef_A.xlsx ??3& = ?" + ?#???& + ?$???& + ?& (a) Use Eviews to obtain a line plot among these three variables (one graph) and comment on the plot. (Hint: to make the graph in Eviews: Quick à Graph à tb3 inf def àOk àLine & Symbol à OK.) [4 marks] (b) Obtain sample correlation coefficient between these variables and comment on the strength of the relationships? (Hint: to obtain correlation in Eviews: Quick à Group Statistics à Correlations à tb3 inf def à Ok.) [4 marks] (c) Estimate the above regression model and provide the Eviews output. [4 marks] (d) Interpret the coefficients ?#and?$. Does the sign of the coefficients agree with your expectations? Explain. [4 marks] (e) Provide and interpret the coefficient of determination, ?$. [4 marks] (f) Plot the residuals of the model and comment on any pattern. [2 marks] (g) Add a one lag of inf and def to the equation in part (a) and re-estimate your model. and report the result. Are the coefficients for the two lag variables individually significant at the 5% level? To add lag variables in Eviews type inf(-1) def(-1) [4 marks] (h) Conduct the second order autocorrelation test for the model in part (c) at the 5% significance level. Attach your Eviews results. Clearly states all steps in your test; Null and alternative hypotheses, the auxiliary regression and the test statistic, critical value, your decision and the conclusion. [6 marks] (i) Re-estimate your model with Newey-West standard errors and provide your output. Compare your results with the output in part (c). Comment. [2 marks]