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Problem 11.17
a.
Estimate a log-linear model using the given data. You can use any combination of the independent
variables you choose. I estimated a regression with ln(Q)=f(ln(disposable income), ln(price of
chicken), ln(composite price index)). [Note this is not the best model] Be sure to store the
residuals, this also stores the predicted Y, (Y-hat).
SUMMARY
OUTPUT
Regression Statistics
Multiple R
R Square
Adjusted R Square
Standard Error
Observations
0.990
0.980
0.977
0.028
23
ANOVA
df
SS
Regression
Residual
Total
3
19
22
0.759
0.015
0.775
2.030
0.481
-0.351
-0.061
Standard Error
0.119
0.068
0.079
0.130
Coefficients
Intercept
ln(disposable inc)
ln(Pchick)
ln(Pcomp index)
MS
0.253
0.001
F
315.206
t Stat
17.103
7.058
-4.416
-0.470
P-value
0.000
0.000
0.000
0.644
Here are the predicted values of (ln(Y)) and the residuals (e) from the log-linear regression.
Significance F
0.000
RESIDUAL
OUTPUT
Observation
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
b.
Predicted ln(Q(Chick))
3.343
3.396
3.405
3.432
3.487
3.509
3.524
3.589
3.614
3.630
3.670
3.706
3.738
3.645
3.711
3.703
3.774
3.821
3.819
3.874
3.942
3.958
3.980
Residuals
-0.018
0.002
-0.011
-0.005
-0.046
-0.003
0.048
0.005
-0.011
0.018
0.029
-0.010
-0.005
0.054
-0.005
-0.011
-0.020
-0.034
0.025
0.050
-0.028
-0.013
-0.011
Now estimate a linear regression using the same collection of independent variables.
SUMMARY
OUTPUT
Regression Statistics
Multiple R
R Square
Adjusted R Square
Standard Error
Observations
0.959
0.920
0.907
2.246
23
ANOVA
df
3
19
22
SS
1100.112
95.816
1195.929
MS
366.704
5.043
F
72.716
Coefficients
32.587
0.010
-0.296
0.106
Standard Error
3.974
0.004
0.131
0.072
t Stat
8.200
2.283
-2.257
1.466
P-value
0.000
0.034
0.036
0.159
Regression
Residual
Total
Intercept
Disposable inc
Pchick
Pcomp index
Here are the predicted values of Y and the residuals (e) from the linear regression.
RESIDUAL
Significance F
0.000
OUTPUT
Observation
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
c.
Predicted Q(Chick)
30.835
32.318
32.010
32.633
33.509
34.131
34.364
35.520
35.838
36.524
38.360
38.344
40.190
38.052
40.058
40.915
43.058
43.669
42.754
47.491
52.710
53.639
55.476
Residuals
-3.035
-2.418
-2.210
-1.833
-2.309
-0.831
1.236
0.880
0.862
1.876
2.040
1.956
1.610
2.348
0.642
-0.815
-0.358
0.431
3.946
3.109
-2.610
-1.939
-2.576
To choose between the two functional forms we use the MWD test
0.09
0.08
0.06
0.05
0.02
0.02
0.01
-0.02
-0.04
-0.03
-0.02
-0.06
-0.04
-0.01
-0.02
0.01
-0.01
-0.04
-0.06
-0.01
0.02
0.02
0.04
Regress Y on the Xs and Z1 to get the following results:
SUMMARY OUTPUT
Regression Statistics
Multiple R
R Square
Adjusted R Square
Standard Error
Observations
0.991
0.981
0.977
1.120
23
ANOVA
df
Regression
Residual
Total
Intercept
Disposable inc
Pchick
Pcomp index
Z1 = ln(Y-hat) - predicted(lnY)
4
18
22
SS
1173.361
22.568
1195.929
MS
293.340
1.254
F
233.967
Coefficient
s
30.766
0.008
-0.187
0.087
-45.125
Standard Error
1.996
0.002
0.067
0.036
5.904
t Stat
15.416
3.994
-2.796
2.404
-7.643
P-value
0.000
0.001
0.012
0.027
0.000
Significance F
0.000
Reject H0 if Z1 is statistically significant, in this case we see that Z1 is statistically significant, conclude that
H1 a log-linear model is a better fit.
Now calculate Z2 = antilog(ln(Y-hat) Y(hat)) and regress lnY on the natural logs of Xs and the new
variable Z2.
SUMMARY OUTPUT
Regression Statistics
Multiple R
R Square
Adjusted R Square
Standard Error
Observations
0.991
0.982
0.978
0.028
23
ANOVA
df
Regression
Residual
Total
Intercept
ln(disposable inc)
ln(Pchick)
ln(Pcomp index)
Z2 = antilog(ln(Y-hat) - Y-hat
SS
MS
0.190
0.001
F
242.066
Standard Error
0.118
0.071
0.093
0.129
t Stat
17.067
6.393
-3.157
-0.515
P-value
0.000
0.000
0.005
0.613
31880130123.800
-1.194
0.248
4
18
22
0.761
0.014
0.775
Coefficients
2.015
0.454
-0.292
-0.066
38073961326.163
Significance F
0.000
Here we find that the variable Z2 is not statistically significant and conclude that the log-linear model is the
appropriate model.