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Question Two

(a)
MODEL 1:
      R&Di = α0 + α1 Profitsi + ѵi
      R&Di = 77.57696 + .3614021Profits R^2   =   0.4976
        s.e       (983.6063)   (.0907899)
              t = (0.0789)       (3.9806)

MODEL 2:
  ln R&Di = β0 + β1 ln Profitsi + ѵi
ln R&Di   = -1.2551 + .9910lnProfits R^2   =   0.7064
        s.e       (1.3647)   (.1597)
              t = (-0.9197)   (6.2043)

(b)
MODEL 1:


From the graph for Model 1, it is evident that errors are heteroskedastic. This is because e2 is increasing with Profits.

MODEL 2:


From the graph above for Model 2, we can see that by taking the log of Model 1 we are able to smooth the data and thus reduce variance within the model. However in the log-log model it shows that it is not clear to have heteroskedasticity.

(c)
MODEL 1:

White's test for Ho: homoskedasticity
              against Ha: unrestricted heteroskedasticity

        chi2(2)           =     14.03
        Prob > chi2   =     0.0009
For Model1 the White test stat is bigger than the chi square value, at better than 1% significance level. Therefore we reject the null hypothesis  
Cameron & Trivedi's decomposition of IM-test

        ---------------------------------------------------
                        Source |       chi2     df       p
        ---------------------+-----------------------------
  Heteroskedasticity |       14.03       2     0.0009
                  Skewness |       1.64       1     0.2006
                      Kurtosis |       4.76       1     0.0292
      ---------------------+-----------------------------
                          Total |       20.42       4     0.0004
      ---------------------------------------------------

MODEL 2:

White's test for Ho: homoskedasticity
              against Ha: unrestricted heteroskedasticity

        chi2(2)           =       0.78
        Prob > chi2   =     0.6770

Cameron & Trivedi's decomposition of IM-test...

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"Econ". Anti Essays. 22 Apr. 2019

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Econ. Anti Essays. Retrieved April 22, 2019, from the World Wide Web: https://www.antiessays.com/free-essays/Econ-576713.html