The paper "Heteroskedasticity Test" is an outstanding example of a finance and accounting assignment. AR 1 is a model that is used to determine or predict time series and is affected by the availability of outliers while ARD1 is not affected by outliers. AR1 uses excitation noise of student t distribution while ARD1 uses AR coefficient to determine the model order. Question 12 Log DD= a0 +a1log P + e LogDD- a1log P =a0 +e Log (DD-) = a0 +e DD- = (a0+e) DD - (a0+e) = =DD - (a0+e) P= Part B Question1 (a) Income is included as a log because it is has a non-linear relationship and it has an indirect relationship with medical expenditure.
Age is included as a non-linear relationship because it has random dependent variables. (b)It is possible for private health insurance to influence medical expenditures because health insurance always pays medical expenses at a given rate. It is influenced by the level of medical insurance cover. (C) The implication of fixed effect estimator ensures that the observed quantities are treated like non-random quantities and also allow explanatory variables to be used as if they are originated from random causes. Question2 (a) Why is a choice is correlated with U1? There is a correlation of choice with U1 because Choice of the school depends on the family income.
It is also due to choice and U1 is directly depending on each other. (b)Is grant correlated with U1? Grant is has a positive correlation with U1 because it influences the occurrence of U1 (C) The reduced form of choice and what is needed for a grant to be partially correlated with choice is = Score-1(β 0+β 2faminic+U1) and foe grant to be partially correlated the endogenous variable must be solved through regression and its derivation is done by first starting with identifying the certain relationship between different variables. d) The reduced equation for score and explain why this is useful.
The reduction of this is useful for economic analysis. It also standardizes the question to a manageable level. Score = choice + faminic + U1 Question 3 (a) Interpretation of the equation The presence of terrorism in a country depends on the nature of the political regime and geographical area to which the country is situated. The equation aims to capture the relationship between the political regime and terrorism.
The type of system identified is a fixed effect model system. (b) The estimation methodology is moment estimations which require the determination of the equation used to produce the relationship of the terrorism with the population parameter for it to proceed. Question 4 (i) There evidence of heteroskedasticity from the above model because residual and predicted variables of the above equation are normally distributed and there is a strong relationship between the predicted values and the residual values. (ii)Yt=β 1 (1/σ t)+β 2X2t/σ t +β 3X3t/σ t +… +β kXkt/σ t +ut/σ t