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    Exercise 8- 2021

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    Exercise 8- 2021

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    Exercise 8- 2021

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    Exercise 8

    1. What should be the degree of freedom (df) for fixed effects estimation is the data set
    include N cross sectional units cover T time periods and the regression model has k
    independent variables?

    (a) N-kT
    (b) NT-k
    (c) NT-N-k
    (d) N-T-k
    2. A pooled OLS estimator that is based on the time-demeaned variables are called the:
    (a) Random effects estimator
    (b) Fixed effects estimator
    (c) Least absolute deviations estimator
    (d) Instrumental variable estimator
    3. Which of the following types of variables cannot be included in a fixed effects
    model?
    (a) Dummy variable
    (b) Discrete dependant variable
    (c)Time-varying independent variable
    (d) Time-constant independent variable

    4. Economics researcher collected 352 observations on 44 rice farmers in the Tarlac


    region of the Phillipines for the years 1990-1997 to study the factors that affects the rice
    production. Variables in the dataset are tonnes of freshly threshed rice (PROD), hectares
    planted (AREA), person-days of hired and family labor (LABOUR), and kilograms of
    fertilizer (FERT).

    The three seemingly unrelated regression for the years of 1995, 1996 and 1997 are
    reported in the following Table.

    RAO, YAO ECON312 1


    Variables 1995 1996 1997
    CONSTANT 2.5181 -0.9284 -1.4106
    (0.6596) (0.5693) (0.8405)
    Ln(AREA) 1.3165 0.5050 0.4745
    (0.1751) (0.1442) (0.2162)
    Ln(LABOR) -0.2612 0.4363 0.3249
    (0.1540) (0.1553) (0.2066)
    Ln(FERT) -0.0591 0.0353 0.3058
    (0.0566) (0.1152) (0.1483)

    a) What assumptions are you making when you estimate the above equation?

    b) The estimated correlations between the errors for the three years are 𝑟1995,1996 =
    0.3580, 𝑟1995,1997 = 0.4378, 𝑟1996,1997 = 0.3037 respectively. Carry out a
    hypothesis test to see if SUR estimation is preferred over separate least squares
    estimation.

    RAO, YAO ECON312 2

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