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Tutorial 3 Questions

1) The document discusses questions related to econometric models analyzing factors that affect sleep and housing prices. 2) It includes models using variables like total work, education, age, pollution levels, number of rooms to predict sleep, housing prices, and CEO salaries. 3) Questions ask about interpreting coefficients, predicting changes based on the models, and issues like multicollinearity between independent variables.

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64 views

Tutorial 3 Questions

1) The document discusses questions related to econometric models analyzing factors that affect sleep and housing prices. 2) It includes models using variables like total work, education, age, pollution levels, number of rooms to predict sleep, housing prices, and CEO salaries. 3) Questions ask about interpreting coefficients, predicting changes based on the models, and issues like multicollinearity between independent variables.

Uploaded by

Bella
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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RMIT

Classifi
cation:
Basic Econometrics
Truste
Tutorial 3 Questions
d
Question 1)
The following model is a simplified version of the multiple regression model used by Biddle
and Hamermesh (1990) to study the tradeoff between time spent sleeping and working and
to look at other factors affecting

sleep=β 0 + β 1 totwrk + β 2 educ+ β 3 age+u ,

where sleep and totwrk (total work) are measured in minutes per week and educ and age
are measured in years. (See also Computer Exercise in Tutorial 2.)

(i) If adults trade off sleep for work, what is the sign of β 1?

(ii) What signs do you think β 2 and β 3 will have?

(iii)Using the data in SLEEP75, the estimated equation

sleep=3638.25−.148totwrk −11.13 educ +2.20 age


n=706 , R 2=.113 .

If someone works five more hours per week, by how many minutes is sleep predicted to
fall? Is this a large tradeoff?

(iv)Discuss the sign and magnitude of the estimated coefficient on educ.

(v)Would you say totwrk, educ, and age explain much of the variation in sleep? What other
factors might affect the time spent sleeping? Are these likely to be correlated with totwrk?

Question 2)

The following equation describes the median housing price in a community in terms of
amount of pollution (nox for nitrous oxide) and the average number of rooms in houses in
the community (rooms
l og ( price )=β 0−β 1 log ( nox ) + β 2 rooms+u

(i)What are the probable signs of b1 and b2? What is the interpretation of b1? Explain.

(ii)Why might nox [or more precisely, log(nox)] and rooms be negatively correlated? If this is
the case, does the simple regression of log(price) on log(nox) produce an upward or a
downward biased estimator of b1?

(iii)Using the data in HPRICE2, the following equations were


log ( price )=11.71−1.043 log ( nox ) , R2=. 264
RMIT
Classifi
cation:
Truste
d
l og( price)=9.23−0. 718 log(nox )+ 0.3 06 rooms , R2=.5 14

Is the relationship between the simple and multiple regression estimates of the elasticity of
price with respect to nox what you would have predicted, given your answer in part (ii)?
Does this mean that is −0. 718 definitely closer to the true elasticity than −1.043?

Question 3)
The following equation describes the median housing price in a community in terms of
amount of pollution (nox for nitrous oxide measured as parts per million) and the average
number of rooms in houses in the community (rooms).

Suppose, using data on house prices (measured in thousands of NZ dollars) from various
cities of New Zealand, the following equation was estimated:

l og( price)=6.15−0.824 log(nox)+0.376 rooms , n=303 , R2=.522 .

i. Interpret the estimates of 6.15 and -0.824.

ii. If the house owners living in a community in Auckland with two bedrooms per house
on average decide to renovate their houses so the average number of bedrooms in
the community becomes four, then given nox = 5.24, predict the pre- and post-
renovation median prices of the house. Interpret the change in the price.

COMPUTER EXERCISES FOR R

Question 4)

The file CEOSAL2 contains data on 177 chief executive officers and can be used to examine
the effects of firm performance on CEO salary.

(i)Estimate a model relating annual salary to firm sales and market value. Make the model of
the constant elasticity variety for both independent variables. Write the results out in
equation form.

(ii)Add profits to the model from part (i). Why can this variable not be included in
logarithmic form? Would you say that these firm performance variables explain most of the
variation in CEO salaries?

(iii)Add the variable ceoten to the model in part (ii). What is the estimated percentage
return for another year of CEO tenure, holding other factors fixed?

(iv)Find the sample correlation coefficient between the variables log(mktval) and profits.
Are these variables highly correlated? What does this say about the OLS estimators?

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