,
,:ONTENTS
:hapter 1: The Nature of Regression Analysis .......................................................................................... 1
:hapter 2: Two-Variable Regression Analysis: Some Basic Ideas ............................................................. 5
:hapter 3: Two-Variable Regression Model: The Problem of Estimation ............................................... 11
:hapter 4: The Normality Assumption: Classical Normal Linear Regression Model (CNLRM) ............ 22
:hapter 5: Two-Variable Regression: Interval Estimation and Hypothesis Testing ................................ 24
:hapter 6: Extensions of the Two-Variable Regression Model ................................................................ 36
'.hapter 7: Multiple Regression Anaysis: The Problem ofEstimation...................................................... 43
'.hapter 8: Multiple Regression Anaysis: The Problem oflnference ........................................................ 53
'.hapter 9: Dummy Variable Regression Models ...................................................................................... 70
'.hapter 10: Multicollinearity: What Happens if the Regressors are Correlated? .................................... 86
'.hapter 11: Heteroscdasticity: What Happens when Error Variance is Nonconstant ............................... 99
'.hapter 12: Autocorrelation: What Happens if the Error Terms are Correlated ..................................... 111
'.hapter 13: Econometric Modeling: Model Specification and Diagnostic Testing ................................ 124
'.hapter 14: Nonlinear Regression Models .............................................................................................. 134
'.hapter 15: Qualitative Response Regression Models ............................................................................ 138
'.hapter 16: Panel Data Regression Models ............................................................................................ 144
'.hapter 17: Dynamic Econometric Models: Autoregressive and Distributed Lag Models .................... 149
'.hapter 18: Simultaneous-Equation Models ........................................................................................... 160
'.hapter 19: The Identification Problem .................................................................................................. 163
'.hapter 20: Simultaneous-Equation Methods ......................................................................................... 168
'.hapter 21: Time Series Econometrics: Some Basic Concepts .............................................................. 173
'.hapter 22: Time Series Econometrics: Forecasting............................................................................... 181
iii
, PREFACE
This manual provides answers and solutions to some 475 questions
and problems in the fourth edition of Basic Econometrics. Most of the
answers and solutions are given in detail. In a few cases where detailed
answers were not necessary, I have provided some guidance.
Providing the solutions has been a tedious and time-consuming task.
I have made every effort to check the accuracy of the solutions but some
numerical errors and inaccuracies and misprints may have crept in. I would
appreciate it very much if the reader will bring them to my attention so that
I can correct them in the reprints of this manual.
Answers to some questions are qualitative in nature and are,
therefore, open to discussion. In some cases there may be more than one
way of solving a problem or modeling an economic phenomenon. I hope
that instructors will supplement this solutions manual with their own
exercises.
I would welcome any suggestions the reader may have to offer to
improve the quality of the questions and problems as well as any other
aspect of this solutions manual. I would also welcome any comments about
the fourth edition of Basic Econometrics.
Damodar Gujarati
Department of Social Sciences
U.S. Military Academy
West Point, NY 10996.
USA
,:ONTENTS
:hapter 1: The Nature of Regression Analysis .......................................................................................... 1
:hapter 2: Two-Variable Regression Analysis: Some Basic Ideas ............................................................. 5
:hapter 3: Two-Variable Regression Model: The Problem of Estimation ............................................... 11
:hapter 4: The Normality Assumption: Classical Normal Linear Regression Model (CNLRM) ............ 22
:hapter 5: Two-Variable Regression: Interval Estimation and Hypothesis Testing ................................ 24
:hapter 6: Extensions of the Two-Variable Regression Model ................................................................ 36
'.hapter 7: Multiple Regression Anaysis: The Problem ofEstimation...................................................... 43
'.hapter 8: Multiple Regression Anaysis: The Problem oflnference ........................................................ 53
'.hapter 9: Dummy Variable Regression Models ...................................................................................... 70
'.hapter 10: Multicollinearity: What Happens if the Regressors are Correlated? .................................... 86
'.hapter 11: Heteroscdasticity: What Happens when Error Variance is Nonconstant ............................... 99
'.hapter 12: Autocorrelation: What Happens if the Error Terms are Correlated ..................................... 111
'.hapter 13: Econometric Modeling: Model Specification and Diagnostic Testing ................................ 124
'.hapter 14: Nonlinear Regression Models .............................................................................................. 134
'.hapter 15: Qualitative Response Regression Models ............................................................................ 138
'.hapter 16: Panel Data Regression Models ............................................................................................ 144
'.hapter 17: Dynamic Econometric Models: Autoregressive and Distributed Lag Models .................... 149
'.hapter 18: Simultaneous-Equation Models ........................................................................................... 160
'.hapter 19: The Identification Problem .................................................................................................. 163
'.hapter 20: Simultaneous-Equation Methods ......................................................................................... 168
'.hapter 21: Time Series Econometrics: Some Basic Concepts .............................................................. 173
'.hapter 22: Time Series Econometrics: Forecasting............................................................................... 181
iii
, PREFACE
This manual provides answers and solutions to some 475 questions
and problems in the fourth edition of Basic Econometrics. Most of the
answers and solutions are given in detail. In a few cases where detailed
answers were not necessary, I have provided some guidance.
Providing the solutions has been a tedious and time-consuming task.
I have made every effort to check the accuracy of the solutions but some
numerical errors and inaccuracies and misprints may have crept in. I would
appreciate it very much if the reader will bring them to my attention so that
I can correct them in the reprints of this manual.
Answers to some questions are qualitative in nature and are,
therefore, open to discussion. In some cases there may be more than one
way of solving a problem or modeling an economic phenomenon. I hope
that instructors will supplement this solutions manual with their own
exercises.
I would welcome any suggestions the reader may have to offer to
improve the quality of the questions and problems as well as any other
aspect of this solutions manual. I would also welcome any comments about
the fourth edition of Basic Econometrics.
Damodar Gujarati
Department of Social Sciences
U.S. Military Academy
West Point, NY 10996.
USA
