Question

Question 1 You are interested in studying the effect of the US minimum Rico. Therefore you use the following dataset wage on employment in Puerto Variable LPREPOP Log of the Puerto Rican employment per capita LMINCOVLog of the minimum wage relative to average wages Description time trend (1 to 38) LUSGNP Log of US gross national product a) Explain what autocorrelation is. Provide an example which illustrates the regression problem, and describe a method that can be used to reduce the impact of autocorrela- tion mar b) Consider the following two outputs at the bottom of this page and the top of the next i) How do you interpret the coefficient estimates in both outputs? Be as precise as ii) Explain the differences between the coefficient estimates for LUSGNP in Output iii) Test the nll hypothesis, that the coefficient in front of LMINCOV in Output 2 one: you can! 1 and Output 2. Give an economic interpretation equals-0.13. (Use a significance level of 5%) 10 marks Figure 1: Regression Output 1 Source 38 34.04 0.0000 0.6605 0.6411 .0557 df MS Number of obs F(2, 35) Model.211258194 108600157 2 .105629097Prob>F 35 .003102862 R-squarecd Residual Adj R-squared Total 319858351 37 .00864482Root MSE lprepop Coef. Std. Err p>It! [95% Conf. Interval] mincov1544433 .0649015 -2.38 0.023 .2862003 -.0226863 -.1918817.1675019 4994453 usgnp .0121899 .0885134 -0.14 0.891 cons 1.054413 .7654066 1.38 0.177 -2.608271

Answer 1

Date: ----09/01/2019 swer. aAutocorrelation : It is Characteristic of data which shows the degree of similarity between the values of same variable over successive intervals. When you have series of numbers, and there is pattern such that values in series can be predicted based on preciding values in the series. In Simplest words, Aurocorrelation is data that is correlated with itself. For Example, Suppose you want to predict savings of Person from his Income. and you have data of 10 Peoples, If Increase in Income of Person A affect Savings of Person B then we can say that Autocorrelation is present in data, which you have to consider in regression Model. There are various ways in dealing with Autocorrelation, some of them are, a) Include dummy variable in the data b) Estimated Generalized Least Squares c) Include a linear (trend) term if the residuals show a consistent increasing or decreasing pattern. b)Answer: i In Regression Output 1, We can say that, If Minimum Wage relative to average Wages increased by one Unit then Puerto Rican employment per Capita will decreases by 0.1544433. Also, One Unit increase in US Gross national Product will cause decrease in Puerto Rican employment per Capita by 0.121899. When Minimum Wage and US Gross national Product are zero then Puerto Rican employment per capita is 1.054413