ECON 120C --- HOMEWORK #2, DUE AT 9:35 AM, TUESDAY, MAY 19, 1998
This assignment consists of two parts and will be worth 5 percent for
parts I and II combined. Part I is here and Part II will be posted
later. LATE PAPERS WILL NOT BE ACCEPTED.
START THIS PART RIGHT AWAY BECAUSE THE METHODOLOGY IS VERY COMPLICATED
AND YOU NEED PLENTY OF LEAD TIME.
All references are only to the fourth edition. The third edition will
not help you understand the methodologies.
First review the four tests for heteroscedasticity (HSK) described in
Section 8.2 (ignore the Goldfeld-Quandt test). In particular, study
Examples 8.3 and 8.5 and the computer printout in Table 8.1. You are
going to carry out similar tests using the data in the file
data7-8 described in Appendix D and the model described in
Exercise 7.22. Note that some of the variables are dummies and hence
you have to be careful in your formulations.
FROM YOUR HOME COMPUTER
If you have already installed ESL in your computer, then exit
temporarily to DOS and type CD \ESL and press enter to change to the
directory in which the ESL program is stored. DO NOT USE ESLWIN
BECAUSE SOMETIMES IT DOES NOT WORK VERY WELL.
FROM PC LAB IN ECON 100
First exit from Windows to DOS. Then type CD \PGMS\ESL and press
enter to change to the directory in which the ESL program is stored.
DO NOT USE ESLWIN BECAUSE SOMETIMES IT DOES NOT WORK VERY WELL. Also
note that if you do this in parts, copy files to a floppy disk and
then copy them back to this directory later.
Part I (Testing for heteroscedasticity)
Type: esl data7-8 to run ESL with this data.
When the ? prompt appears, type the command
square 2 3 4 5 6 7 8 ;
to generate the squares of the independent variables. Note that ESL
does not generate squares for dummy variables. Next estimate by ols
the basic model with the linear terms only (ols 1 0 2 3 ... 8 ;) and
save the residuals using the command genr ut = uhat.
Follow the directions in class and generate the absolute value of ut,
ut squared, and ln(ut squared). If you missed the class, get someone
else's notes and follow the directions. DO NOT ASK THE TAs OR ME FOR
HELP UNTIL YOU HAVE FOLLOWED THE DIRECTIONS AND FOUND PROBLEMS. IF YOU
FOUND PROBLEMS, YOU MUST BRING THE PRINTOUT FOR US TO TROUBLE SHOOT,
i.e. type quit to exit ESL and print the output by following the
screen directions.
Next run the auxiliary regressions using each of the formulations given
below.
Specifications of auxiliary equations
Glesjer: sigma sub t = a0 + a1 inv + a2 y60 + a3 pop + a4 doecd
[see Appendix D for a definition of the above variables]
Breusch-Pagan:
sigma squared sub t = b0 + b1 inv + b2 inv squared
+ b3 y60 + b4 y60 squared
+ b5 pop + b6 pop squared
+ b7 doecd
Harvey-Godfrey:
ln(sigma squared sub t) = c0 + c1 inv + c2 inv squared
+ c3 y60 + c4 y60 squared
+ c5 pop + c6 pop squared
+ c7 doecd
White:
sigma squared sub t = d0 + d1 inv + d2 inv squared
+ d3 y60 + d4 y60 squared
+ d5 pop + d6 pop squared
+ d7 school + d8 school squared
+ d9 dn + d10 di + d11 doecd
Next compute each of the LM = nR square values, and use the print
command to print them. If you follow the class directions, you can get
the p-values using ESL. When you are done, type
store data1 ;
quit
to store all the original and transformed variables in the file data1
and exit to DOS. Follow screen directions to obtain the printed
output. If you did the above in the Econ 100 lab, be sure to copy the
files data1, data1.hdr, inp, and out.txt to a floppy and take it with
you.
In the computer output either write on the margin or import the
output file into MSWord and insert annotations as in the book
describing step by step what you did and why.
Use a 10 percent level and test each of the models for HSK. Be sure to
state the null hypothesis, the test statistics and its distribution
including the d.f., the critical value and the decision rule.
What do you conclude? Do the tests indicate significant HSK or not?
Keep the above with you for reference when you do Part II which will
cover the estimation procedure. DO NOT TURN IT IN YET.