Methods assignment 2010
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School of Economics ECO-2A06 Methods of Economic Research Assignment)
This assignment should be submitted to the ECO/DEV Teaching Office (Arts 3.09) by 3pm on Thursday 18 March 2010. The assignment is worth 20% of the module mark
Question 1 is worth 70% of the total mark, Question 2 is worth 30%. Question one (70%
The file wineweatherdata contains average 1989 prices for Bordeaux wines for the vintages from 1952 to 1989, along with data on weather conditions when each vintage was grown. The variables are:
logprice : Natural log of the price of Bordeaux wines relative to the price of
the 1961 vintage.
degrees : Average temperature in the growing season (degrees Celsius) hrain : Rainfall in the harvest season (mm).
wrain : Winter rainfall prior to the harvest season (mm).
time_sv : Time from 1989 back to the wine’s vintage year.
age : Age of wine in 1989
Before answering these questions look carefully at the sample size (there are some missing values).
(a) Why does the variable logprice have the value zero in 1961?
(b) Explore the effect of weather conditions and age on the Bordeaux wine’s price
by estimating the following model:
u age wrain hrain rees deg price log +++++=43210βββββ
Report the results. Indicate the level of significance using stars (** denotes strong significance p<0.01 and * denotes significance p<0.05).
(c) Interpret the coefficients of the explanatory variables and comment on their
individual significance (hint: carry out t-tests).
(d) Comment on the explanatory power of this model.
(e) Estimate the same model and store the residuals. Do not report the results
again but plot the residuals against time. What does the pattern tell us about the model in part (b)?
(f) Test formally for the problem you have identified in (e). What implications does
your finding have for your results?
Question 2 (30%)
The file EDUC contains data on weekly earnings (wpay), years of education (ed) and years of experience (exper) collected for a sample of 570 individuals.
(a) Estimate the following wage equation:
i i i i i i u er exp er exp educ wpay ++++=23210ββββ
Report the results. Indicate the level of significance using stars
(** strong signficance p<0.01 and * denotes significance p<0.05).
(b) Comment on the relationship between wages and experience. Is there
evidence of a non-linear relationship?
(c) Is there evidence of a problem of heteroscedasticity in this model? (Assume
that education is the variable that is “causing” the problem of heteroscedasticity).
(d) Explain how the presence of heteroscedasticity violates one of the multiple
l inear regression assumptions.。