ECMT 5001 Year 2008 Semester 2_ECMT 5001 Solution Tutorial 6.docVIP

Econometrics Business Statistics ECMT5001: Principles of Econometrics Tutorial 6: Simple Regression Models Which of the following models are linear regression models? yi = B1 + B2 xi2 + ui d) yi = B1 exp(B2xi + ui) yi = B1 + B2 ln xi + ui e) yi = B1 + B23 xi + ui ln yi = B1 + B2 xi + ui f) yi = B1 + B2 (1 / Xi) + ui A linear regression model has to be linear in the parameters, i.e. in the B’s. So, (a), (b), (c) and (f) are linear regression models, but (d) and (e) are not. The formal definition is that should NOT be a function of Bj. (Gujarati, Ex. 6.9) The following table gives data on weekly family consumption expenditure (Y) (in dollars) and weekly family income (X) (in dollars). Weekly income (X) Weekly consumption expenditure (Y) 80 55, 60, 65, 70, 75 100 65, 70, 74, 80, 85, 88 120 79, 84, 90, 94, 98 140 80, 93, 95, 103, 108, 113, 115 160 102, 107, 110, 116, 118, 125 180 110, 115, 120, 130, 135, 140 200 120, 136, 140, 144, 145 220 135, 137, 140, 152, 157, 160, 162 240 137, 145, 155, 165, 175, 189 260 150, 152, 175, 178, 180, 185, 191 For each income level, compute the mean consumption expenditure, , that is, the conditional expected value. X E(Y|X=x) 80 65 100 77 120 89 140 101 160 113 180 125 200 137 220 149 240 161 260 173 Plot these data in a scattergram with income on the horizontal axis and consumption expenditure on the vertical axis. Plot the conditional means derived in part (a) on the same scattergram. To get this in Excel Make a list of all the data, X, Y and E(Y|X=x) (This is the average Y when X=80 and the average when X = 100 etc.) X Y E(Y | X=x) 80 55 65 80 65 65 80 65 65 80 70 65 80 75 65 100 65 77 100 70 77 100 74 77 100 80 77 100 85 77 You need to type out the whole list. Go to Insert Chart: then choose XY scatter and make the graph. What can you say about the relationship between Y and X and between mean Y and X. Seems t