ECO 4005 UOT Regression and statistics Questions

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ECO 4005



2. Explain the following concepts: (2 marks each)

a. Omitted variable bias

b. Multicollinearity

c. Autocorrelation

d. Unbiasedness

e. Mis-specification of the model

3. A linear multiple regression model is given as:

Y = βo + β1 X1 + β2 X2 + μ

a. Determine the parameters of this model (3 marks)b. Explain the circumstance under which X1 be called an endogenous variable? (3 marks)1

1.The relationship between earnings and education is shown in the following regression:

Earnings = 5.23 + 0.065 Educ + 0.08 Experience

s.e. (2.14) (0.009) (0.03)

a. Construct a 95% confidence interval for the effect of years of education on earnings.

b. How would 15 years of related experience impact 2 additional years of earnings?

c. Assume that persons working with this company have different “abilities”, but this was not taken into consideration in the above regression. If you have to include abilities as a new variable, what would be the new regression function?

d. What should be the theoretical sign of β3?

e. If the variable, ability, is included in the new regression function, would the size of the estimated value of βo (the constant) be greater than or less than its size in the regression without the variable ability? Explain

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