Welcome to Econ 420 Applied Regression Analysis. Study Guide Week Ten. Ok People. We have an Exam on Thursday, November 1. My original plan was to cover Chapter 6 before this exam. But I changed my mind. (Hope you don’t mind.) So the Exam will cover only 2 chapters (4 & 5).
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1. Use the data set dvd4 and EViews to test the hypothesis that at high levels of income people are less sensitive to the price of dvd than at low levels of income. Use 5 percent level of significance
a. H0: B1=B2, HA: B1 is not equal to B2
b. You will need to design your own F-test. The unrestricted model is:
c. After estimating the restricted and unrestricted models, you should get a residual sum of squares for the restricted model of 5.28 x 109 or 5,280,000,000. The residual sum of squares for the unrestricted model is 4.33 x 109 or 4,330,000,000. q, the number of restrictions, is 1. B1 can take any value, and then B2 must take the same value as B1 for the null hypothesis to be true, so B2 has a restricted value if the null hypothesis is true. The null hypothesis used here only imposes one restriction.
The critical value for F1,27 with a 1% error level is 7.68. Since the calculated value of the F-statistic is lower than the critical value, we cannot reject the null hypothesis that B1=B2. (Note that the critical value for a 5% error level is 4.21, so the null hypothesis could be rejected with a 5% error level).
The critical value of F3,17 at a 1% error level is 5.19, so the null hypothesis is rejected.