This IT Assessment is composed by two IT exercises using the software Eviews. It covers chapter8of the book about heteroscedasticity.This assignment worth for 10% of the total grade.It is an assignment of group of two students.
This project is divided into two parts. Part I investigates whether the residuals of the estimated original model is homoscedasticor not.The objective of part II is to remove this heteroscedasticity from the residuals series using the Weighted Least Square technique.
Consider the following linear multiple regression model :
lsavi = β0+β1linci + β2inti+εi
Whereβ0, β1 and β2 are the coefficients to be estimated and εi is the error term supposed to be an independent and identically distributed with mean zero and variance σ2.
where,, and are the logarithm of saving, income and interest rate respectively. The data available in blackboard under assignment in the folder IT_assignment (Assignment_Part1_Part2.wf1). The total number of observation is 224.
PART I (4 points)
Question 1 :Estimate model 1, interpret the significance of the estimated coefficients, the overall validity of the model and the coefficient of determination. (1 points)
Question 2 :Report the histogram of the residuals series obtained from model 1, tests whether the residuals series are normally distributed or not?(1 points)
Question 3 :Using the Eviews test the homoscedasticity assumption of the residuals using the Breush-Pagan-Goldfrey and White tests. (2point)
Report and interpret the results and tests the hypothesis of homoscedasticity against heteroscedasticity.
PART II (6 points)
Question 1 : for this data we suspect two kinds of heteroscedasticity :
Question 2 : For each case (case 1 and case 2) estimate the weighted model. To do this you need to create a new variables.
For case oneCall themx1, lsavs1, lincs1 and ints1 for the intercept c and the variables lsav, linc and int, respectively. These variables are the weighted new variables of the intercept and the other explanatory variables lsav, linc and int.
For case twoCall them x2, lsavs2, lincs2 and ints2.
Question 3 :Report the results of the Breusch-Pagan-Goldfrey and white tests of heteroscedasticity for each case.(1.5 points)
Interpret the results.
Question 4 :Report the histogram of each weighted model that you have estimated and interpret the result.(1 point)
Question 5:what is your conclusion?(1 point)