In order to develop a demand function for cars in the US from 1950 to 1990...

 

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In order to develop a demand function for cars in the US from 1950 to 1990 the following model was considered (t-stats in parentheses): C-hatt = 22.9 + 13.5Pt + 4.1Yt + 42At (1.4) (0.6) (1.1) R2 = 0.7 Where Ct = thousand of cars sold in year t Pt = price index of cars in year t, Yt disposable income in year t At = billions of dollars of advertising expenditures by the auto industry in the year, t a. Test the appropriate null hypotheses at the 5 percent level (t-critical = 1.729). b. What econometric problems appear to be present in this equation? Why? c. Suppose you were told that VIF(P) and VIF(Y) are greater than 15, a Park test with Y as Z produced a t-score of 0.3, and the F-statistic for the Ramsay test is 52. What suggestions would you have for another run of this regression? In order to develop a demand function for cars in the US from 1950 to 1990 the following model was considered (t-stats in parentheses): C-hatt = 22.9 + 13.5Pt + 4.1Yt + 42At (1.4) (0.6) (1.1) R2 = 0.7 Where Ct = thousand of cars sold in year t Pt = price index of cars in year t, Yt disposable income in year t At = billions of dollars of advertising expenditures by the auto industry in the year, t a. Test the appropriate null hypotheses at the 5 percent level (t-critical = 1.729). b. What econometric problems appear to be present in this equation? Why? c. Suppose you were told that VIF(P) and VIF(Y) are greater than 15, a Park test with Y as Z produced a t-score of 0.3, and the F-statistic for the Ramsay test is 52. What suggestions would you have for another run of this regression?

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a To test the appropriate null hypotheses at the 5 percent level the tstatistic for each variable mu... View the full answer