QUESTION A1 (20 marks) (a) Explain the following terms i. Estimated regression equation usually population size may be too large or unknown therefore inference is made on the sample drawn from the population using the estimated regression equation which is the statistical technique that attempts to...
ECS3706 Exam (Assignment) Questions and Answers/ 100 out of 100
QUESTION A1 (20 marks)
(a)
Explain the following terms
i. Estimated regression equation
usually population size may be too large or unknown therefore inference is
made on the sample drawn from the population using the estimated
regression equation which is the statistical technique that attempts to explain
movements in one dependent variable given independent variables
ii. Expected value
Expected value is the anticipated long-run average value of X if this die is
rolled over and over and over and also The expected value is an average of
the possible outcomes weighted by their respective probabilities
iii. Independent variable
Independent variable is the variable that is changed or controlled in sceientific
experiment to test the effects on the dependent variavle or variable that are
manipulated or are changed by researchers and whose effects are measured
and compared
iv. Estimator
An estimator - A sample statistic that will be used to estimate the value of the
population parameter.
v. Ordinary Least Squares
is a statistical estimator which is usually applied to sample data where the
sample is a
subset of the population. These sample estimates are not necessarily
accurate. There is the
risk that the sample estimates may be in error
B.
i. Why is the left-hand variable in the equation and not ?
There are two logical options when you vary t: either the value of the left-hand
side changes, or it doesn’t. If it changes, then the right side must change as
well, since they are equal. But the right-hand side can’t change when you vary
t, since it is not a function of t! Therefore, since varying t produces no change
in the left-hand-side, then the left-hand side must be constant. And since it is
equal to the right-hand side, then they are both (the same) constant
ii. The researcher did not include the stochastic error term in the
estimated equation. Was this a mistake? Why or why not?
An error term is a residual variable produced by a statistical or mathematical
model, which is created when the model does not fully represent the actual
, relationship between the independent variables and the dependent variables.
As a result of this incomplete relationship, the error term is the amount at
which the equation may differ during empirical analysis.
The error term Is also known as the residual, disturbance, or remainder term,
and is variously represented in models by the letters e, ε, or u.
iii. If the researcher changes units of INC from “Rand” to “thousands of
rand.” Will the estimated coefficients change? Be specific.
Yes , everything will change since variables changed
iv. What additional variables would you add to this equation?
P values and coefficients in regression analysis work together to tell you
which relationships in your model are statistically significant and the nature of
those relationships. The linear regression coefficients describe the
mathematical relationship between each independent variable and the
dependent variable. The p values for the coefficients indicate whether these
relationships are statistically significant
QUESTION A2 (20 marks)
(a) Using practical examples, discuss the six steps in applied regression
analysis
STEPS IN APPLIED REGRESSION ANALYSIS
Once a dependent variable is chosen, however, it’s logical to follow this
sequence:
1. Review the literature and develop the theoretical model.
The best data analysts don’t start with data, but with theory! Econometric
decisions, ranging from which variables to include to
which functional form to employ, are determined by the underlying theoretical
model.
It’s smart to review the scholarly literature, recent issues of the Journal of
Economic Literature or a business oriented
publication of abstracts on your topic. Pay attention to the bibliographies.
If a topic will be so new or so obscure there are two possible strategies.
1. Try to transfer theory from a similar topic to yours.
2. If all else fails, pick up the telephone and call someone who works in the
field you’re investigating.
2. Specify the model: Select the independent variables and the
functional form.
The most important step is the specification of the theoretical regression
model. After selecting the dependent variable, the
specification of a model involves choosing the following components:
1. The independent variables and how they should be measured
2. The functional (mathematical) form of the variables, and
3. The properties of the stochastic error term.
The elements of specification are determined on the basis of economic
theory. A mistake in any of the three elements results in
a specification error which is usually the most disastrous to the validity of the
estimated equation.
ECS3706 Exam (Assignment) Questions and Answers/ 100 out of 100
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