Question

8.

Consider the following double log model ln Ht = α + β ln Yt + γ ln rt + ut

where H is the number of single family dwellings per capita, Y is per capita income and r is the interest rate. There are 40 observations of these variables.

a) What do the parameters β and γ represent?
Suppose one wanted to use an LM test to test for first-order autocorrelation.

2. b) State the null and alternative hypotheses for no first-order autocorrelation.

3. c) What is the auxiliary equation?

4. d) How would you calculate the test statistic?

5. e) What is the distribution of the test statistic and degrees of freedom?

Answer 1