BEE2006

UNIVERSITY OF EXETER
BUSINESS SCHOOL
TEST: JANUARY 2012
STATISTICS AND ECONOMETRICS
Module Convenor: Dr Paulo M.D.C. Parente
Duration: ONE HOUR
Answer ALL questions.
Materials to be supplied: Statistical Tables
Instructions (please read before starting): Write in ink/ballpoint, not in pencil.
Approved calculators are permitted. Only one sheet (2 sides A4) of notes made exclusively
by the student may be consulted (no material distributed by the teacher in any form is
allowed). Whenever conducting a test use a 5% signicance level unless stated otherwise.
Also be sure to state null and alternative hypotheses, null distribution (with degrees of
freedom), rejection criterion (critical values and rejection region) and outcome. If you
are asked to derive something, give all intermediate steps also. Do not answer questions
with a yes or no only, but carefully justify your answer.
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1. Consider the following model for the performance of a random sample of 17-19 year
old students, who had taken an A-level in Mathematics:
A =
0
+
1
log(B) +
2
log(Y ) +
3
G+
4
G
2
+
5
Male +
6
Ind +u, (1)
where A is the score (out of 100) in modular A-level math (taken at approximately
age 18), B is an numerical ability score taken at age 10, Y is parental income, G is
the score (out of 100) in GCSE math (taken at approximately age 16), Male = 1
if male, 0 if female, Ind = 1 if independent (fee-paying) school, 0 otherwise and
u N(0,
2
). The results from estimating this equation using data from a random
sample of 2986 individuals, who took A-level modular math by Ordinary Least
Squares (OLS) were (standard errors in parentheses):

A
i
= 86.13
(20.14)
+ 5.132
(2.106)
log(B
i
) + 3.621
(0.983)
log(Y
i
) + 0.421
(0.210)
G
i
0.009
(0.002)
G
2
i
+15.34
(6.112)
Male
i
+ 22.143
(4.198)
Ind
i
, i = 1, ..., 2986,
SSR = 10.85, SSE = 5.82, cov(

3
,

4
) = 0.0003,
where SSR denotes the residual sum of squares, SSE denotes the explained sum
of squares and cov(

3
,

4
) is the estimated covariance between the OLS estimators
of
3
and
4
.
(a) (13 Marks) Give a brief interpretation of the coecients on the variable log(Y ).
(b) (13 Marks) Test the hypothesis that the marginal response of A-level modular
math (A) to GCSE math (G) is zero, when G = 43.
(c) (13 Marks) Compute the R
2
of the estimated model and test the signicance
of the overall regression.
(d) (15 Marks) Equation (1) is estimated separately for 972 students who took
their A-level math at aged 17 and for those 2014 students who took the paper
aged 18 or 19. These two equations yielded SSR of 3.92 and 6.89, respectively.
Test the hypothesis that the parameters of the model (1) are identical for these
two groups of students.
(e) (13 Marks) The variables Ind G and Ind G
2
are added to equation (1),
which is estimated by OLS and this yielded a SSR of 10.64. Test the joint
signicance of Ind G and Ind G
2
.
(f) (13 Marks) The last 10 individuals in our sample were taught math using a
revolutionary new technique, known as the Sukudo method. We estimate the
equation:
A
i
=
0
+
1
log(B
i
)+
2
log(Y
i
)+
3
G
i
+
4
G
2
i
+
5
Male
i
+
6
Ind
i
+

10
i=1

j
d
ji
+u
i
,
i = 1, ..., 2986
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where
d
ji
=

1 for individual 2976 +j

0 otherwise
, j = 1, ..., 10
by Ordinary Least Squares. The resultant model yielded a SSR of 10.74. Test
H
0
:
1
=
2
= ... =
10
= 0. In a sentence describe what this hypothesis is
testing.
2. Consider the linear regression model
y
i
= x
i
+u
i
, E[u
i
|x
i
] = 0,
E[x
i
] =
x
, i = 1, ..., n.
Assume that (y
i
, x
i
) are independent for i = 1, ..., n . Denote the estimator
obtained by regressing of y
i
on an intercept.
(a) (5 Marks) Show that = y, where y =

n
i=1
y
i
/n.
(b) (10 Marks) Show that E[ |x
1
, ..., x
n
] = x, where x =

n
i=1
x
i
/n.
(c) (5 Marks) Are there any circumstances in which is an unbiased estimator
for ?
L: oi I.iin
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