Subject Code : | BEX2410 |
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Country : | Australia |

**Question 1 **

The data for this question is contained in the Eviews workfile, Assignment 1 Data.wf1, which has been uploaded to the Assignment folder on Moodle. The data set contains information regarding a variety of characteristics for a randomly selected sample of 1388 women. The variables in the data set which are used in the assignment are defined as follows: Variable Code Description lbwght the natural logarithm of the birth weight in ounces of a newly born infant white 1 if mother is white, 0 otherwise male 1 if a newly born infant is male, 0 otherwise cigs the average number of cigarettes smoked per day by mother during pregnancy lfaminc the natural logarithm of family income in thousands of dollars

(a) Assume that Do you think that it is plausible to assume that the error term in is conditionally homoskedastic? Briefly explain.

(b) Conduct a Breusch-Pagan test of the null hypothesis that the conditional variance of the error term in is homoskedastic against the alternative that it is a linear function of the regressors in . Specify any auxiliary regression equation that you estimate in answering the question. State the null and alternative hypotheses in terms of restrictions on the parameters of the auxiliary regression equation, specify the form and distribution of the test statistic under the null, the sample value and critical value of the test statistic, your decision rule and your conclusion. (Use the R2 form of the test).

(c) What are the implications of the result of your test in ? Briefly explain.

(d) Conduct a White test of the null hypothesis that the conditional variance of the error term in (2) is homoskedastic. Use the " y form" of the test. Specify any auxiliary regression equation that you estimate in answering the question. State the null and alternative hypotheses in terms of restrictions on the parameters of the auxiliary regression equation, specify the form and distribution of the test statistic under the null, the sample value and critical value of the test statistic, your decision rule and your conclusion.

(e) Use appropriate p-values to determine whether or not the regressors in are individually significant at the 5% significance level.

**Question 2 **

An Eviews workfile containing the data for Question 2 has been uploaded to the Assignments folder on Moodle. The file is called Data Assignment 2Q2. The data set contains annual observations on the rate of inflation, inf, and the rate of monetary growth, mg, for Norway for the years 1900 to 2015 inclusive. The sample means of the variables are:

(a) Do you agree with the statement that inf is a white noise process? Briefly explain.

(b) i) Estimate the linear regression equation Report the estimated equation in equation form in the main body of your assignment. Report the estimated coefficients and standard errors to three decimal places.

ii) Conduct some informal analysis to determine whether or not there is any evidence of autocorrelation in the error term in.

iii) Perform a Breusch-Godfrey test of the null hypothesis that there is no first-order or second-order autocorrelation in the error term in. State the null and alternative hypotheses, the form and distribution of the test statistic under the null, the sample value and critical value of the test statistic, your decision rule and your conclusion. (Use the R2 form of the test).

iv) Is the OLS estimator of the parameters in unbiased? Briefly explain.

v) What is the predicted impact effect on the rate of inflation of an increase in the rate of monetary growth? Briefly explain.

vi) Derive an expression for the long run effect on the rate of inflation of an increase in the rate of monetary growth.

vii) What is the predicted long run effect on the rate of inflation of an increase in the rate of monetary growth?

(c) i) Estimate the linear regression equation Report the estimated equation in equation form in the main body of your assignment. Report the estimated coefficients and standard errors to three decimal places.

ii) Do you prefer model given by or the model given by? Briefly explain.

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