ECM3MEC Modelling with Econometrics

| March 22, 2015

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Modelling with Econometrics: Challenges and Solutions ECM3MEC
Task 1
Download and describe the data. Calculate, using Eviews, the mean, median, standard deviation, maximum and minimum for each variable and comment. [2 marks]
Write out the result in an equation form and provide economic meanings of the estimated slope coefficients. [2 marks]
Statistically test for the significance of individual slope coefficients ß4 and ß5. (You may use either one-tailed or two-tailed test, but you should justify your choice giving economic reasons). [1 mark]
Test the hypothesis that ß3 + ß4 + ß5 = 1 using the F-test (Wald test). Explain the economic meaning of this hypothesis. [1 mark]
Task 2
It is claimed that the main contributors to the total cost in this industry is the output level and fuel costs, while the capital costs and wage costs have negligible effect. Test this claim by F-test. [2 mark]
Conduct the RESET test for the regression. Is there any evidence of specification error? [1 Mark]
Test for the normality of error term in the regression using the appropriate test. [1 Mark]
Plot the absolute values of residuals from equation (2) against log(Qi) (squared residuals on the y-axis). Comment on the main features in the variability of the total cost in relation to the problem of heteroskedasticity, giving economic interpretations. [2 marks]
Combining the estimation and inferential results obtained so far, discuss the main econometric problems associated with the model. You may suggest possible solutions and, if necessary, conduct additional econometrics analyses to further improve the regression. [3 marks]
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