1. Using n = 97 observations on the rate of wage inflation (DW₁), the rate of price inflation (DP,) and the unemployment rate (U₁), the following regression results are obtained by ordinary least squares; the dependent variable is DW₁, t = 1,2, ...,n. Variable Coefficient SE HCSE HACSE constant 0.0242 0.0081 0.0103 0.0062 0.0836 0.1505 0.0968 0.0177 -0.9536 0.1430 0.2085 0.2044 0.6359 0.0837 0.1221 0.0758 U₁-1 DU, DP₁-1 R² = 0.5248 SSR = 0.1285 RESET 1.4605 [0.2299] WH=13.727 [0.0000] BG=5.8774 [0.0040] DU₁ = U₁ - U₁-1 is the change in the unemployment rate; SE is ordinary estimated standard error; HCSE is heteroskedasticity consistent standard error; HACSE is heteroskedasticity and autocorrelation consistent standard error; SSR is the sum of squared residuals; R² is the coefficient of determination; RESET is Ramsey's regression specification error test; WH is White's heteroskedasticity test; BG is the Breusch-Godfrey test for second-order autocorrelation; figures in brackets are the p-values of tests. (a) For each of the three diagnostic tests, RESET, WH and BG, what does the outcome of the test mean? (b) In light of your answer in (a), which is your preferred choice among SE, HCSE and HACSE, and why? (c) In light of your answers in (a) and (b), test the null hypothesis that the coef- ficient on DP-1 is equal to 1 against the alternative that it is less than 1 at significance level 10% (the critical value for the test is -1.2907). State clearly what the distribution of your test statistic is under the null hypothesis. (d) In light of your answers in (a) and (b), compute a 90% confidence interval for the coefficient on U-1 (the 0.05 quantiles that are needed for the interval are +1.6614). Given this confidence interval, would you say that U-1 has a significant effect on DW,? Explain. (e) Use a conventional F-statistic to test whether the slope coefficients are jointly equal to zero at significance level 10% (the critical value for the test is 2.1436). State clearly what the distribution of the test statistic is under the null hy- pothesis. In light of your answers in (a) and (b), is this test reliable?
1. Using n = 97 observations on the rate of wage inflation (DW₁), the rate of price inflation (DP,) and the unemployment rate (U₁), the following regression results are obtained by ordinary least squares; the dependent variable is DW₁, t = 1,2, ...,n. Variable Coefficient SE HCSE HACSE constant 0.0242 0.0081 0.0103 0.0062 0.0836 0.1505 0.0968 0.0177 -0.9536 0.1430 0.2085 0.2044 0.6359 0.0837 0.1221 0.0758 U₁-1 DU, DP₁-1 R² = 0.5248 SSR = 0.1285 RESET 1.4605 [0.2299] WH=13.727 [0.0000] BG=5.8774 [0.0040] DU₁ = U₁ - U₁-1 is the change in the unemployment rate; SE is ordinary estimated standard error; HCSE is heteroskedasticity consistent standard error; HACSE is heteroskedasticity and autocorrelation consistent standard error; SSR is the sum of squared residuals; R² is the coefficient of determination; RESET is Ramsey's regression specification error test; WH is White's heteroskedasticity test; BG is the Breusch-Godfrey test for second-order autocorrelation; figures in brackets are the p-values of tests. (a) For each of the three diagnostic tests, RESET, WH and BG, what does the outcome of the test mean? (b) In light of your answer in (a), which is your preferred choice among SE, HCSE and HACSE, and why? (c) In light of your answers in (a) and (b), test the null hypothesis that the coef- ficient on DP-1 is equal to 1 against the alternative that it is less than 1 at significance level 10% (the critical value for the test is -1.2907). State clearly what the distribution of your test statistic is under the null hypothesis. (d) In light of your answers in (a) and (b), compute a 90% confidence interval for the coefficient on U-1 (the 0.05 quantiles that are needed for the interval are +1.6614). Given this confidence interval, would you say that U-1 has a significant effect on DW,? Explain. (e) Use a conventional F-statistic to test whether the slope coefficients are jointly equal to zero at significance level 10% (the critical value for the test is 2.1436). State clearly what the distribution of the test statistic is under the null hy- pothesis. In light of your answers in (a) and (b), is this test reliable?
Calculus For The Life Sciences
2nd Edition
ISBN:9780321964038
Author:GREENWELL, Raymond N., RITCHEY, Nathan P., Lial, Margaret L.
Publisher:GREENWELL, Raymond N., RITCHEY, Nathan P., Lial, Margaret L.
Chapter2: Exponential, Logarithmic, And Trigonometric Functions
Section2.CR: Chapter 2 Review
Problem 111CR: Respiratory Rate Researchers have found that the 95 th percentile the value at which 95% of the data...
Related questions
Question
can you answer parts a, b and c for this question
![1. Using n - 97 observations on the rate of wage inflation (DW₁), the rate of price
inflation (DP,) and the unemployment rate (U₁), the following regression results are
obtained by ordinary least squares; the dependent variable is DW₁, t = 1,2,..., n.
Variable
constant
U₁-1
DU
DP₁-1
Coefficient SE HCSE HACSE
0.0242 0.0081 0.0103 0.0062
0.0836 0.1505
0.0177
0.0968
-0.9536
0.1430 0.2085
0.2044
0.6359
0.0837 0.1221 0.0758
R² = 0.5248
SSR = 0.1285
RESET= 1.4605 [0.2299]
WH 13.727 [0.0000]
BG= 5.8774 [0.0040]
=
DU₁ = U₁ - U-1 is the change in the unemployment rate; SE is ordinary estimated
standard error; HCSE is heteroskedasticity consistent standard error; HACSE is
heteroskedasticity and autocorrelation consistent standard error; SSR is the sum
of squared residuals; R² is the coefficient of determination; RESET is Ramsey's
regression specification error test; WH is White's heteroskedasticity test; BG is the
Breusch-Godfrey test for second-order autocorrelation; figures in brackets are the
p-values of tests.
(a) For each of the three diagnostic tests, RESET, WH and BG, what does the
outcome of the test mean?
(b) In light of your answer in (a), which is your preferred choice among SE, HCSE
and HACSE, and why?
(c) In light of your answers in (a) and (b), test the null hypothesis that the coef-
ficient on DP-1 is equal to 1 against the alternative that it is less than 1 at
significance level 10% (the critical value for the test is -1.2907). State clearly
what the distribution of your test statistic is under the null hypothesis.
(d) In light of your answers in (a) and (b), compute a 90% confidence interval
for the coefficient on U-1 (the 0.05 quantiles that are needed for the interval
are 1.6614). Given this confidence interval, would you say that U-1 has a
significant effect on DW,? Explain.
(e) Use a conventional F-statistic to test whether the slope coefficients are jointly
equal to zero at significance level 10% (the critical value for the test is 2.1436).
State clearly what the distribution of the test statistic is under the null hy-
pothesis. In light of your answers in (a) and (b), is this test reliable?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F96167457-d811-4af3-a382-0d03304a1ad0%2F842e8f09-b954-4d90-9247-7fcd4c3b89d9%2F037nlbg_processed.jpeg&w=3840&q=75)
Transcribed Image Text:1. Using n - 97 observations on the rate of wage inflation (DW₁), the rate of price
inflation (DP,) and the unemployment rate (U₁), the following regression results are
obtained by ordinary least squares; the dependent variable is DW₁, t = 1,2,..., n.
Variable
constant
U₁-1
DU
DP₁-1
Coefficient SE HCSE HACSE
0.0242 0.0081 0.0103 0.0062
0.0836 0.1505
0.0177
0.0968
-0.9536
0.1430 0.2085
0.2044
0.6359
0.0837 0.1221 0.0758
R² = 0.5248
SSR = 0.1285
RESET= 1.4605 [0.2299]
WH 13.727 [0.0000]
BG= 5.8774 [0.0040]
=
DU₁ = U₁ - U-1 is the change in the unemployment rate; SE is ordinary estimated
standard error; HCSE is heteroskedasticity consistent standard error; HACSE is
heteroskedasticity and autocorrelation consistent standard error; SSR is the sum
of squared residuals; R² is the coefficient of determination; RESET is Ramsey's
regression specification error test; WH is White's heteroskedasticity test; BG is the
Breusch-Godfrey test for second-order autocorrelation; figures in brackets are the
p-values of tests.
(a) For each of the three diagnostic tests, RESET, WH and BG, what does the
outcome of the test mean?
(b) In light of your answer in (a), which is your preferred choice among SE, HCSE
and HACSE, and why?
(c) In light of your answers in (a) and (b), test the null hypothesis that the coef-
ficient on DP-1 is equal to 1 against the alternative that it is less than 1 at
significance level 10% (the critical value for the test is -1.2907). State clearly
what the distribution of your test statistic is under the null hypothesis.
(d) In light of your answers in (a) and (b), compute a 90% confidence interval
for the coefficient on U-1 (the 0.05 quantiles that are needed for the interval
are 1.6614). Given this confidence interval, would you say that U-1 has a
significant effect on DW,? Explain.
(e) Use a conventional F-statistic to test whether the slope coefficients are jointly
equal to zero at significance level 10% (the critical value for the test is 2.1436).
State clearly what the distribution of the test statistic is under the null hy-
pothesis. In light of your answers in (a) and (b), is this test reliable?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 5 steps with 1 images
Recommended textbooks for you
Calculus For The Life Sciences
Calculus
ISBN:
9780321964038
Author:
GREENWELL, Raymond N., RITCHEY, Nathan P., Lial, Margaret L.
Publisher:
Pearson Addison Wesley,
Glencoe Algebra 1, Student Edition, 9780079039897…
Algebra
ISBN:
9780079039897
Author:
Carter
Publisher:
McGraw Hill
Calculus For The Life Sciences
Calculus
ISBN:
9780321964038
Author:
GREENWELL, Raymond N., RITCHEY, Nathan P., Lial, Margaret L.
Publisher:
Pearson Addison Wesley,
Glencoe Algebra 1, Student Edition, 9780079039897…
Algebra
ISBN:
9780079039897
Author:
Carter
Publisher:
McGraw Hill
Functions and Change: A Modeling Approach to Coll…
Algebra
ISBN:
9781337111348
Author:
Bruce Crauder, Benny Evans, Alan Noell
Publisher:
Cengage Learning
Big Ideas Math A Bridge To Success Algebra 1: Stu…
Algebra
ISBN:
9781680331141
Author:
HOUGHTON MIFFLIN HARCOURT
Publisher:
Houghton Mifflin Harcourt