QUESTION THREE Model comparison is very important in econometric analysis. Mr Homoscedasticity Mbewe, a Senior Researcher at the Ministry of Finance was conducting an analysis into factors that influence consumer loan default in Zambia. He obtained the following restricted model (model 1): Variable P-value Age Income Marital status 0.08 0.05 0.01 ii) Coefficient 0.03 0.08 0.10 Model 2: The unrestricted model has additional variables of 'Employment status' with 0.31 P-value and -0.08 coefficient value; and 'Financial literacy' with 0.23 p-value and 0.013 coefficient value. The sample size (n) of his study was 542 and he used 5% level of significance in his estimation. The RSS value of the unrestricted model is 2023.61 i) AIC BIC Adjusted R-squared Model Values R-squared=0.66 ESS-3973 Using the F-test, demonstrate how Mr. Homoscedasticity can conduct his model comparison (between restricted and the unrestricted models). Given the information below, comment on the model fit and compare your conclusions to those under the F-test conducted in (i) Criteria Model 1 Model 2 4020.12 4068.53 4055.08 4157.82 0.68 0.64
QUESTION THREE Model comparison is very important in econometric analysis. Mr Homoscedasticity Mbewe, a Senior Researcher at the Ministry of Finance was conducting an analysis into factors that influence consumer loan default in Zambia. He obtained the following restricted model (model 1): Variable P-value Age Income Marital status 0.08 0.05 0.01 ii) Coefficient 0.03 0.08 0.10 Model 2: The unrestricted model has additional variables of 'Employment status' with 0.31 P-value and -0.08 coefficient value; and 'Financial literacy' with 0.23 p-value and 0.013 coefficient value. The sample size (n) of his study was 542 and he used 5% level of significance in his estimation. The RSS value of the unrestricted model is 2023.61 i) AIC BIC Adjusted R-squared Model Values R-squared=0.66 ESS-3973 Using the F-test, demonstrate how Mr. Homoscedasticity can conduct his model comparison (between restricted and the unrestricted models). Given the information below, comment on the model fit and compare your conclusions to those under the F-test conducted in (i) Criteria Model 1 Model 2 4020.12 4068.53 4055.08 4157.82 0.68 0.64
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:QUESTION THREE
Model comparison is very important in econometric analysis. Mr Homoscedasticity
Mbewe, a Senior Researcher at the Ministry of Finance was conducting an analysis
into factors that influence consumer loan default in Zambia. He obtained the following
restricted model (model 1):
Variable
P-value
0.08
0.05
0.01
Age
Income
Marital status
Coefficient
0.03
0.08
0.10
ii)
Model 2: The unrestricted model has additional variables of 'Employment status' with
0.31 P-value and -0.08 coefficient value; and 'Financial literacy' with 0.23 p-value and
0.013 coefficient value. The sample size (n) of his study was 542 and he used 5%
level of significance in his estimation. The RSS value of the unrestricted model is
2023.61
i)
Model Values
R-squared=0.66
ESS-3973
Using the F-test, demonstrate how Mr. Homoscedasticity can conduct his
model comparison (between restricted and the unrestricted models).
Given the information below, comment on the model fit and compare your
conclusions to those under the F-test conducted in (i)
Criteria
Model 1
Model 2
AIC
4020.12
4068.53
BIC
4055.08
4157.82
Adjusted R-squared
0.68
0.64

Transcribed Image Text:E
Instrumental variables are important in some sections of econometric analysis.
As a student of econometrics, explain the concept of instrumental variables and
situations in which they are useful.
Explain one possible variable state of the employment variable given individuals
were asked whether they were employed or not.
v)
In the second model, explain how you can interpret the employment variable
assuming it is significant, and in the 'level-level' model specification. Note that
the coefficient of employment is negative.
iv)
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