1. Christopher Dougherty EC220 - Introduction to econometrics (chapter 2) Slideshow: exercise 2.22 Original citation: Dougherty, C. (2012) EC220 - Introduction to econometrics (chapter 2). [Teaching Resource] © 2012 The Author This version available at: http://learningresources.lse.ac.uk/128/http://learningresources.lse.ac.uk/128/ Available in LSE Learning Resources Online: May 2012 This work is licensed under a Creative Commons Attribution-ShareAlike 3.0 License. This license allows the user to remix, tweak, and build upon the work even for commercial purposes, as long as the user credits the author and licenses their new creations under the identical terms. http://creativecommons.org/licenses/by-sa/3.0/ http://creativecommons.org/licenses/by-sa/3.0/ http://learningresources.lse.ac.uk/

2. 2.22 Calculate the 95 percent confidence interval for b 2 in the price inflation/wage inflation example: =-1.21 +0.82w (0.05)(0.10) (n = 20). What can you conclude from this calculation? EXERCISE 2.22 1

3. =-1.21 +0.82w (0.05)(0.10) 2 The confidence interval is shown in abstract. EXERCISE 2.22

4. =-1.21 +0.82w (0.05)(0.10) 3 Substitute the components in this example. Since there were 20 observations, there were 18 degrees of freedom and the critical value of t at the 5% level is 2.101. EXERCISE 2.22

5. =-1.21 +0.82w (0.05)(0.10) 4 Hence we obtain the confidence interval. EXERCISE 2.22

6. =-1.21 +0.82w (0.05)(0.10) 5 Note that it (just) includes 1.0. This means that the null hypothesis H 0 :  2 = 1 would not be rejected. EXERCISE 2.22

7. 6 Thus we could not rule out the possibility that a change in wage inflation may cause an equal change in price inflation. We come to the same conclusion as with the (two-tailed) t test. =-1.21 +0.82w (0.05)(0.10) EXERCISE 2.22

8. Copyright Christopher Dougherty 1999–2006. This slideshow may be freely copied for personal use. 19.06.06