Page 1

SINGAPORE MANAGEMENT UNIVERSITY

School of Economics

Econ107 Introduction to Econometrics

Assignment 1
Due: Thursday 11:30am, Jan 26, 2017

1. Using the data in the following table, answer parts (a) through (g).

Observation Number

1 2 3 4 5

Yt 5 2 3 2 -2

Xt 3 2 1 -1 0

(1) Find the following:

X t2 , X t Y t , X t , Y t , X , Y

(2) Find 1 and 0 using OLS and the calculations in part (1).

(3) Plot the data points and the estimated regression line on a graph

(4) Give an interpretation of 1 and 0 .

(5) On the graph in part (3), locate the point corresponding to the means of X t and
Yt. Does your regression line pass through this point? If not, go back to the
drawing board, literally.

(6) Show that the residuals sum to zero. Compute the standard error of the
estimate and the coefficient of determination. Interpret the latter summary
statistic.

(7) Test the null hypothesis that the population regression line is perfectly
horizontal at a 10% level using a 2-tailed test.

2. Suppose we begin with the following regression model:

Y i = 0 + 1 X i + i
 Page 2
answer the questions in parts (1) and (2).

(1) Using the formulae for estimating 1 and 0 under OLS, show what will
happen to these estimated coefficients if we add a constant, say 1, to the
dependent variable.

(2) Using the formulae for estimating 1 and 0 under OLS, show what will
happen to these estimated coefficients if we add a constant, say 1, to the
independent variable.

3. An econometrician graphs the observations on the dependent variable (Y t) against the

observations for the independent variable (Xt) and finds the following:

Is the person justified in thinking that if she regresses Yt on Xt shell get a perfect fit
(i.e., R2=1)? Why or why not? What will the estimated slope coefficient be? How
would your answers change if all the observations were lined up along the 45 degree
line from the origin?