ML johny

1. Estimate the above equation by OLS and present the results in a suitable table

(n.b. marks will be lost for simply pasting over the computer output)

(i) comment on the magnitude of the coefficients on the GDP variables.

n.b. please be careful to take into account the possibility that the variables have not been identically deflated in the linear function (for example cars may be in thousands or hundred thousands of people and GDP in units of one person).

(ii) comment on the R squared statistic for both equations.

(iii) using your estimated equations work out the predicted impact of an increase of GDP of 10% above the arithmetic mean.

(iv) derive estimates of the elasticity of car ownership to real income from both equations.

2. Carry out [separately in each case for (i) and (ii)] the following hypothesis tests:

(i) b0=0 ;d0=0 against the two sided alternative at the 10% level.

(ii) b1=0 ;d1=0against the two sided alternative at the 5% level.

(iii) d1<1 against the alternative at the 20% level.

3. Examine the residuals of your equations and indicate whether any of your nations are outliers in terms of the predictive accuracy of the regression equation.

4. You should now write a short report of 450-600 words. This should briefly summarize your findings but most of your answer should consist of further exploration of your data (such as collecting further explanatory variables and estimating new regressions) and suggestions for improvement of the model you have estimated.