Microsoft Word - Assignment_Econ6034_Final.docx
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
• 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%
• 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.
• 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
• Marks will be deducted for poor quality presentation.
• No appendices in your assignment.
• Maximum pages 12
• You can ONLY submit ONCE to Turnitin.
• 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:
� I agreed and submit my assignment.
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
(a) Consider a regression model
???????! = ?" + ?# log(??????!) + ?$?ℎ??????! + ?%???????! + ?!
Estimate the model using Eviews and provide the summary results (A
summary results should include fitted equation with coefficients, standard
or, t-statistic, p-value, sample size, F-statistic and R-squared). [4 marks]
(b) Interpret the coefficient estimates and their significance at the 5% significance
level. [4 marks]
(c) Does the sign of the coefficients agree with your expectations? Comment.
(d) Based on the regression output, if Income increases by 10% what is the
estimated change in Foodexp, holding Children and Retired constant. [4 marks]
(e) Test the overall validity of the regression model at the 5% significance level.
State the hypotheses, restricted and unrestricted model, test statistics and its
distribution when null hypothesis is true, critical value and your conclusion.
(f) Construct 95% confidence interval for ?#, the slope of the log(Income) variable
and interpret your results. [4 marks]
(g) Based on your answer in part (f), without performing a hypothesis test,
would you reject the hypothesis ?": ?$ = 100, ?#: ?$ ≠ 100. Explain? [4
(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
(j) Re-estimate your model with robust standard e
ors and attach your Eviews
output. Compare your results with the output in part (a). Comment.
(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
udget 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 co
elation coefficient between these variables and comment
on the strength of the relationships? (Hint: to obtain co
elation in Eviews: Quick
à Group Statistics à Co
elations à tb3 inf def à Ok.) [4 marks]
(c) Estimate the above regression model and provide the Eviews output.
(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 autoco
elation 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 e
ors and provide your
output. Compare your results with the output in part (c). Comment.