ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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- Imagine you are an economist working for the Government of Econville. You are tasked with developing a model to predict the GDP of the country based on various factors such as interest rates, inflation, unemployment rate, and population growth. You collect quarterly data for the past 20 years and start building your model. After running your initial regression, you notice some peculiar patterns in the residuals: (1) residuals do not have identical variances across different levels of the independent variables; (2) two or more independent variables in a regression model are highly correlated with each other; (3) the correlation of a variable with its own past values. You suspect that your model might be suffering from 3 potential issues in the regression analysis that can affect reliability and validity. List 2 factors in your model that might be causing the Heteroscedasticity and give a reasonarrow_forwardExplain why in every econometric model there must be an error term, explain its function.arrow_forwardImagine you are an economist working for the Government of Econville. You are tasked with developing a model to predict the GDP of the country based on various factors such as interest rates, inflation, unemployment rate, and population growth. You collect quarterly data for the past 20 years and start building your model. After running your initial regression, you notice some peculiar patterns in the residuals: (1) residuals do not have identical variances across different levels of the independent variables; (2) two or more independent variables in a regression model are highly correlated with each other; (3) the correlation of a variable with its own past values. You suspect that your model might be suffering from 3 potential issues in the regression analysis that can affect reliability and validity. Based on Addressing Heteroscedasticity list one test you would employ to test this potential issue?arrow_forward
- Write first-order model relating E(y) to four quantitative independent variables.arrow_forwardEconometrics Thomas Eisensee and David Stromberg wanted to measure how much news coverage of a foreign disaster impacted the amount of disaster relief provided by the U.S. government. They argue that the simple relationship would be biased. Let X = Minutes of News Coverage and Y= Disaster Aid. Choose a variable X2 that could bias the simple relationship. This variable should impact the amount of coverage and impact the amount of aid for reasons other than purely news coverage. Eisensee and Stromberg introduce an instrument Z = During the Olympics. Explain how Z could satisfy the relevant and exogenous criteria. Explain how you could use Z to estimate the impact of X on Y free from X2 bias. Hint: you should mention two stages.arrow_forwardSuppose the researcher considers the following model : Wage = Bo+B,Female + u, and runs OLS, using wage data on 250 randomly selected male workers and 280 female workers. The researcher has obtained the estimated equation as Wage = 15 (1.00) 3 Female, R = 0.05. (0.5) In the equation, Wage is measured in dollars per hour, Female is a binary variable that is equal to 1 if the person is a female and O if the person is a male. The numbers in the parentheses are the standard errors of the coefficients. Which Statement is NOT correct? The coefficient of Female, -3.00, is statistically significant at 5%. O The p-value for the test that Ho: B = 0, H : B 0 is less than 0.05. This regression may suffer omitted variable bias. R Since insignificant. is too low, the wage difference between men and women is The researcher can increase R- by including more regressors in the model.arrow_forward
- 5. Choose the correct answer!arrow_forwardRomer Model Exercise: Consider the Romer model, Y = A,Nyt, AAt+1 Ão = 10,1 = 0.01, z = 0.035, Ñ = 100. ZAĄNat, and parameter values are: (a) What is the growth rate of GDP per capita? What is the per capita GDP at period 60, Yt=60? (b) Suppose at period 60, the number of researchers decrease by 50% permanently. Draw a graph to show the impact. What is the value of per capita GDP, y4=60, now? (c) Suppose now the production function is still Y; = A¿Nyt, but the accumulation of ideas becomes AAt+1 = ZA?$ Nat. What is the growth rate of ideas? (d) Following from (c), what is the growth rate of output per capita at period 1?arrow_forward
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