ECON 421/521 Homework #3: Regression Analysis, Assignments of Introduction to Econometrics

Download ECON 421/521 Homework #3: Regression Analysis and more Assignments Introduction to Econometrics in PDF only on Docsity! University of Oregon Department of Economics Fall 2006 ECON 421/521 Homework #3 Question 1: Suppose you estimate the following equation (standard errors are in parentheses): ( ) ( ) 1 2 5.96 0.98 ˆ86.7 1.82 0.05i i i iY X X u= + − + R2 = 0.97 F = 189.8 N = 150 (a) Which variables are statistically significant (positive or negative) at the 5% level? (b) Do you suspect multicollinearity to be a problem in the above model? Give at least 2 reasons why or why not. (c) If multicollinearity is a problem in the model, besides doing nothing, what can be done to “fix” it? Describe at least two techniques. Question 2: (a) Download the file carprices.csv from the course website. The file contains the prices and vehicle characteristics for 251 cars. Estimate the following equation: ( )1 2 3 4 *i i i i i imsrp luxury power luxury power uβ β β β= + + + + where, msrp is the manufacturer’s suggested retail price, luxury is a dummy variable equal to 1 if the car is classified as a luxury vehicle, zero otherwise, and power is the horsepower of the vehicle. -continued on reverse-