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EBQ2074

Class Exercise:

1. Transfer the data in Excel file into Eview.

2. Transform the data into logarithm form.

3. Using Y, X1, X2, X3 and X4, perform the following regression:


a) Regress Y on X1, X2, X3 and X4.
b) Regress LY on LX1, LX2, LX3 and LX4.
c) Regress LY on X1, X2, X3 and X4
d) Regress Y on LX1, LX2, LX3 and LX4

4. Decide which of the functional form is preferable based on the coefficient of


variation approach.

5. Assuming using double-log functional form, perform the following diagnostic


tests:
a) Normality test
b) Serial correlation test
c) Heteroscedasticity test
d) CUSUM sum of square test
e) Variance Inflation Factor
EBQ2074

Summary of Results

Regression Results
Coefficients Standard errors
LX1 0.4574*** 0.0620
LX2 1.2712*** 0.4230
LX3 1.5145*** 0.3390
LX4 -0.7115** 0.3292
C -5.2819** 2.2172
Notes: *** denotes 1% significance level, ** denotes 5% significance level and * denotes 10%
significance level.

Diagnostic Results
Coefficients Probability Decision Conclusion
Normality Test 0.5244 0.7693 Do not reject Normally
Distributed
Serial Correlation 0.9749 0.4032 Do not reject No serial
Test correlation
Heteroscedasticity 1.6188 0.2211 Do not reject Homoscedastic
Test

Variance Inflation Factor:

CUSUM Squares test:


EBQ2074

a) Regress Y on X1, X2, X3 and X4

Dependent Variable: Y
Method: Least Squares
Date: 11/13/17 Time: 10:59
Sample: 1 20
Included observations: 20

Variable Coefficient Std. Error t-Statistic Prob.

X1 25.00610 3.139774 7.964301 0.0000


X2 65.35318 20.65601 3.163882 0.0064
X3 3.088798 0.675980 4.569361 0.0004
X4 -0.785023 0.369106 -2.126824 0.0504
C -8085.271 2216.545 -3.647690 0.0024

R-squared 0.986357 Mean dependent var 5107.320


Adjusted R-squared 0.982718 S.D. dependent var 575.0097
S.E. of regression 75.59061 Akaike info criterion 11.70086
Sum squared resid 85709.10 Schwarz criterion 11.94979
Log likelihood -112.0086 Hannan-Quinn criter. 11.74945
F-statistic 271.1079 Durbin-Watson stat 1.918964
Prob(F-statistic) 0.000000

b) Regress LY on LX1, LX2, LX3 and LX4

Dependent Variable: LY
Method: Least Squares
Date: 11/13/17 Time: 11:01
Sample: 1 20
Included observations: 20

Variable Coefficient Std. Error t-Statistic Prob.

LX1 0.457368 0.062041 7.371981 0.0000


LX2 1.271235 0.423010 3.005211 0.0089
LX3 1.514540 0.339038 4.467176 0.0005
LX4 -0.711493 0.329209 -2.161217 0.0473
C -5.281982 2.217220 -2.382255 0.0309

R-squared 0.985440 Mean dependent var 8.532448


Adjusted R-squared 0.981558 S.D. dependent var 0.112082
S.E. of regression 0.015221 Akaike info criterion -5.319961
Sum squared resid 0.003475 Schwarz criterion -5.071028
Log likelihood 58.19961 Hannan-Quinn criter. -5.271367
F-statistic 253.8101 Durbin-Watson stat 1.947568
Prob(F-statistic) 0.000000
EBQ2074

c) Regress LY on X1, X2, X3 and X4

Dependent Variable: LY
Method: Least Squares
Date: 11/13/17 Time: 11:02
Sample: 1 20
Included observations: 20

Variable Coefficient Std. Error t-Statistic Prob.

X1 0.004606 0.000630 7.305871 0.0000


X2 0.012217 0.004148 2.945390 0.0100
X3 0.000588 0.000136 4.329111 0.0006
X4 -0.000137 7.41E-05 -1.850139 0.0841
C 6.006044 0.445093 13.49390 0.0000

R-squared 0.985521 Mean dependent var 8.532448


Adjusted R-squared 0.981659 S.D. dependent var 0.112082
S.E. of regression 0.015179 Akaike info criterion -5.325493
Sum squared resid 0.003456 Schwarz criterion -5.076560
Log likelihood 58.25493 Hannan-Quinn criter. -5.276899
F-statistic 255.2389 Durbin-Watson stat 1.844407
Prob(F-statistic) 0.000000

d) Regress Y on LX1, LX2, LX3 and LX4

Dependent Variable: Y
Method: Least Squares
Date: 11/13/17 Time: 11:03
Sample: 1 20
Included observations: 20

Variable Coefficient Std. Error t-Statistic Prob.

LX1 2494.186 344.0768 7.248922 0.0000


LX2 6775.631 2345.983 2.888184 0.0113
LX3 7830.447 1880.276 4.164519 0.0008
LX4 -3898.290 1825.771 -2.135147 0.0497
C -66006.00 12296.53 -5.367854 0.0001

R-squared 0.982985 Mean dependent var 5107.320


Adjusted R-squared 0.978448 S.D. dependent var 575.0097
S.E. of regression 84.41461 Akaike info criterion 11.92168
Sum squared resid 106887.4 Schwarz criterion 12.17061
Log likelihood -114.2168 Hannan-Quinn criter. 11.97027
EBQ2074

Normality test
F-statistic 216.6485 Durbin-Watson stat 1.835128
Prob(F-statistic) 0.000000

6
Series: Residuals
Sample 1 20
5
Observations 20

4 Mean 1.69e-15
Median 0.001437
Maximum 0.026899
3
Minimum -0.020266
Std. Dev. 0.013524
2 Skewness 0.185623
Kurtosis 2.298943
1
Jarque-Bera 0.524420
Probability 0.769349
0
-0.02 -0.01 0.00 0.01 0.02 0.03

Serial Correlation Test

Breusch-Godfrey Serial Correlation LM Test:

F-statistic 0.974965 Prob. F(2,13) 0.4032


Obs*R-squared 2.608613 Prob. Chi-Square(2) 0.2714

Heteroskedasticity Test
Heteroskedasticity Test: Breusch-Pagan-Godfrey

F-statistic 1.618795 Prob. F(4,15) 0.2211


Obs*R-squared 6.030385 Prob. Chi-Square(4) 0.1969
Scaled explained SS 2.203067 Prob. Chi-Square(4) 0.6985
EBQ2074

1.6

1.2

0.8

0.4

0.0

-0.4
6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

CUSUM of Squares 5% Significance

Variance Inflation Factors


Date: 11/13/17 Time: 11:11
Sample: 1 20
Included observations: 20

Coefficient Uncentered Centered


Variable Variance VIF VIF

LX1 0.003849 6908.342 2.994558


LX2 0.178938 330940.6 1.471630
LX3 0.114946 602832.2 76.96376
LX4 0.108379 656292.1 68.53340
C 4.916064 424385.1 NA