ETC2410-BEX2410: Introductory Econometrics

Group Assignment 1, Semester 2, 2023

Due: At or before 4:30 p.m. Australian Eastern Standard Time, on Monday, September
18 th , 2023.

Instructions:

1. This assignment is worth 20% of the marks for this unit.

2. Group Assignment 1 must be electronically submitted by 4:30 p.m. Australian Eastern Standard
Time, on Monday, September 18 th , 2023.
3. The assignment must be submitted as a PDF document.
4. The file needs to be uploaded by only one member of each group.
5. All members of the group must click the "Submit Assignment" button on Moodle and accept the
University’s submission statement. This step is essential, so please make sure that you do
this.
6. Any assignment received after 4:30 p.m. on Monday, September 18 th , 2023 will be deemed late.
7. A penalty of 5% per day will be imposed on assignments that are submitted after the due
date. For example, if a group receives a mark of 65% for an assignment that has been submitted
one day late, the mark will be reduced to 60%.
8. Any assignment received after 4:30 p.m. Australian Eastern Standard Time on Monday,
September 25 th , 2023, will receive a mark of zero.
9. Your assignment must be typed. Please use Times New Roman font size 12.
10. When answering the assignment questions please impose the same structure on your answers
that I have used in composing the assignment. For example, Q1, (a), i).
11. Please attach a number to any equation or diagram that you refer to when answering the
assignment questions.
12. When instructed to do so, you must report your results in equation form, with standard errors
reported in parentheses below the parameter estimates. Screen shots of Eviews output are not
acceptable. For example, the estimated regression equation below is reported in equation form,
with standard errors reported in parentheses below the estimated coefficients:
dwage 0. 163 20. 45 educ.
0.02 1.75

You should also report the sample size and R-squared when reporting an estimated regression
equation.
13. When instructed to do so, you must place relevant Eviews output in an appropriately
labelled appendix. The material in the appendices will not be marked. It will only be used to
check that the results reported in the main body of the assignment have been correctly reported.
14. Unless otherwise instructed, all hypothesis tests should be conducted at the 5% significance
level.
15. A penalty of up to 10% will be imposed for careless presentation and/or failure to comply with
the instructions above.
16. Note that the peer evaluation survey must be submitted by 11:59 pm on Monday, September
18th.

1
Peer Evaluation Survey

Each group member will be required to complete an anonymous peer evaluation survey.
The survey will be conducted via the Feedback Fruits app. You will find the link to the app under the
assignment submission link on Moodle. You will be asked to evaluate your group members’
participation and effort. The aim of the survey is to identify and address any dysfunctional groups as
early as possible.

The survey may also be used to adjust your assignment marks in the following manner:

1. Consider hypothetical student called Arsene:

- Let n0 equal the number of (D) votes that Arsene receives from his teammates. A (D)
indicates that in the opinion of his teammates Arsene has contributed nothing to the
completion of the assignment.
- Let n1 equal the number of (C) votes that Arsene receives from his teammates. A (C) vote
means that in the opinion of his teammates Arsene has contributed less than it was agreed
by the group that he would contribute.
- Let GM equal Arsene’s group submission mark. If
n0 n1 2,
then Arsene’s mark for the assignment is
max 0, 1 0. 4 n0 0. 15 n1 GM.
If
n0 n1 2,
then Arsene’s mark for the assignment will be equal to the GM.

2. If you fail to complete the survey by the deadline, we will assume that you have given everyone
else in your group a (B) and that you have given yourself a (D).

Failure to complete the survey by the deadline will result in a loss of marks, so please
complete the survey on time. It is important to communicate clearly with your group members and
make sure that everyone understands what is expected from them.

2
Data Description for Question 1

The purpose of this question is to investigate the influence of various factors on the birth weight
of newly born infants. The data for the assignment is contained in the Eviews workfile, Assignment
1 Data.wf1, which has been uploaded to the Assignment folder on Moodle. The data set contains
information regarding a variety of characteristics for a randomly selected sample of 1388 women.
The variables in the data set which are used in the assignment are defined as follows:
Variable Code Description
lbwght the natural logarithm of the birth weight in ounces of a newly born infant
white 1 if mother is white, 0 otherwise
male 1 if a newly born infant is male, 0 otherwise
cigs the average number of cigarettes smoked per day by mother during pregnancy
lfaminc the natural logarithm of family income in thousands of dollars

3
Question 1 (86 marks)

(a) 14 marks
i) Assume that
E lbwght|cigs 0 1 cigs.

The associated linear regression equation in error form is given by

lbwght 0 1 cigs u. (1)
Estimate (1) by OLS. Report the estimated equation in equation form in the main body of
your assignment. Report the estimated coefficients and standard errors to three decimal
places. Place the Eviews output in Appendix (a).
(2 marks)
ii) Test the individual significance of the regressor cigs. State the null and alternative
hypotheses, the form and sampling distribution of the test statistic under the null, the
sample and critical values of the test statistic, your decision rule and your conclusion.
(6 marks)
iii) What is the predicted average birth weight of infants born to mothers who do not smoke
during pregnancy?
(2 marks)
iv) What is the predicted average birth weight of infants born to women who smoke 10
cigarettes per day during pregnancy?
(2 marks)
v) Do your results provide conclusive evidence that smoking by the mother during pregnancy
reduces/increases the average birth weight of a newly born infant? Briefly explain.
(2 marks)

4
(b) 18 marks
Assume that
E lbwght|white, male, cigs, lfaminc
0 1 white 2 male 3 cigs 4 lfaminc (2)
The associated linear regression equation in error form is given by
lbwght 0 1 white 2 male 3 cigs 4 lfaminc u. (3)
i) Estimate (3) by OLS. Report the estimated regression equation in equation form in the
main body of your assignment. Report the estimated coefficients and standard errors to
three decimal places. Place the Eviews output in Appendix (b).
(2 marks)
ii) Based on the output obtained when (3) is estimated by OLS, are the regressors in (3) jointly
significant? Briefly explain.
(2 marks)
iii) Based on the reported p-values, are any of the regressors in (3) individually insignificant at
the 10% significance level? Briefly explain.
(2 marks)
iv) Based on the reported p-values, are any of the regressors in (3) individually insignificant at
the 5% significance level? Briefly explain.
(2 marks)
v) Do the estimated coefficients have the expected sign? Briefly explain in two sentences for
each estimated coefficient.
(4 marks)
vi) Evaluate the explanatory power of your model.
(2 marks)
vii) Interpret 4.
(2 marks)
viii) Based on the estimated regression equation, what is the most significant influence on the
predicted birth weight of a new born infant? Briefly explain.
(2 marks)

5
(c) 10 marks
i) Test the joint significance of the regressors white and lfaminc in (3). Conduct the test of
joint significance at the 5% significance level. Specify the unrestricted and restricted
models. State the null and alternative hypotheses, the form and sampling distribution of the
test statistic under the null, the sample and critical values for the test statistic, your decision
rule and your conclusion. Place the Eviews output for the restricted model in Appendix
(c).
(8 marks)
ii) Comment on the statement that the race of the mother has no effect on birth weight once
we control for family income, the gender of the baby and cigarette consumptions by the
mother during pregnancy.
(2 marks)
(d) 12 marks
i) Provide an approximate interpretation of 3.
(2 marks)
ii) Provide an exact interpretation of 3.
(2 marks)
iii) Is 3 practically significant? Briefly explain.
(2 marks)
iv) What is the predicted average birth weight of a male child, born to a white mother, who
smokes 20 cigarettes per day and who has a family income of $50,000?
(2 marks)
v) Derive a 95% confidence interval for 3.

(2 marks)
vi) Comment on the precision of 3 as an estimate of 3.

(2 marks)

6
(e) 10 marks
i) Test the null hypothesis that lbwght is a linear function of cigs against the alternative
hypothesis that it is a quadratic function of cigs. Test at the 10% significance level. State
the null and alternative hypotheses, the form and sampling distribution of the test statistic
under the null, the sample and critical values of the test statistic, your decision rule and
your conclusion. Report the estimated equation in equation form in the main body of your
assignment. Report the estimated coefficients and standard errors to three decimal places.
Place the Eviews output in Appendix (e).
(6 marks)
ii) Based on the model estimated in part i) above, what is the predicted effect on the average
birth weight of an infant if a mother increases her cigarette consumption during pregnancy
from 10 cigarettes per day to 15 per day, controlling for gender, race and income?
(2 marks)
iii) Based on the model estimated in part i) above, for what range of values of cigs is the
predicted marginal effect of cigarette smoking on birth weight negative? Briefly explain.
No marks will be awarded for an unsupported answer.
(2 marks)
(f) 6 marks
i) Estimate the linear regression equation
lbwght 0 1 white 2 male 3 cigs 4 lfaminc

5 cigswhite u. (4)
Report the estimated equation in equation form in the main body of your assignment.
Report the estimated coefficients and standard errors to three decimal places. Place the
Eviews output in Appendix (f).
(2 marks)
ii) Is there any evidence at the 10% significance level that, controlling for family income and
gender, the marginal effect of cigarette smoking on birth weight varies by race? Briefly
explain.
(2 marks)
iii) How do you explain the fact that the regressor cigs is statistically insignificant at
conventional significance levels?
(2 marks)

7
(g) 16 marks
Consider once again the linear regression model given by
lbwght 0 1 white 2 male 3 cigs 4 lfaminc

5 cigs white u. (4)

i) Define population A to be the population of women of color with a family income of
$50,000 who smoke 10 cigarettes a day. Write down a theoretical expression for the
average birth weight of a male infant born to a member of population A.
(2 marks)
ii) Define population B to be the population of white women with a family income of $50,000
who smoke 5 cigarettes a day. Write down a theoretical expression for the average birth
weight of a female infant born to a member of population B.
(2 marks)
iii) Derive the restriction(s) on the parameter(s) of (4) implied by the null hypothesis that the
average birth weight of a male infant born to a member of population A is equal to the
average birth weight of a female infant born to a member of population B. Report all steps
in the derivation. No marks will be awarded for an unsupported answer.
(2 marks)
iv) Test the null hypothesis in iii) against the alternative hypothesis that the average birth
weight of a male infant born to a member of population A exceeds the average birth weight
of a female infant born to a member of population B. Specify the null and alternative
hypotheses, the unrestricted and the restricted models, the form and sampling distribution
of the test statistic under the null, the sample and critical value of the test statistic, your
decision rule and your conclusion.Place any Eviews output that you generate in
Appendix (g).
(10 marks)