Prof. Bryan Caplan

Econ 345

Fall, 1998


Part I: Math

Wallace and Silver, Econometrics do exercises: 2.4, 2.5, 2.6

Freedman and Lane, Mathematical Methods in Statistics: p.58-59, #1, #3, #5

Also answer the following questions, and explain your answer:

  1. True or False?: When you regress a dependent variable (Y) on a constant and an independent variable (X), another way to write the formula for b is .
  2. Prove: If b=0, then . Show that in this case, R2=0.
  3. Your regression errors come out to the following: {4, 3, 6, 1, -1, -3, -6, 2, -6}. You used one independent variable in the regression.
  1. What is N?
  2. What is (k+1)?
  3. Calculate s 2.
  1. What is wrong with the following set of errors: {4, 3, 6, 0, -1, -3, -6, 2, -6}?

Part II: Computing

  1. Download the Eviews workfile hw2.bin; it contains data for for M2 (a measure of money supply), nominal GDP, and real GDP, as well as data on inflation and unemployment.
  2. Create a Group containing all five series, and get their descriptive statistics using both Common Sample and Individual Samples (print both). What causes the discrepancy between the two sampling methods?
  3. Using the Equation function, try the following regressions. Make sure you include a constant.
  1. real GDP on nominal GDP
  2. nominal GDP on M2
  3. unemployment on inflation

Comment on each of your results and print them. Is the coefficient positive or negative? Significant at the 5% level or not? What are your R2's?