Linear regressions.

... Linear regressions Problem 1 You have estimated the linear regression model yt = a + b1x1t + b2x2t + b3x3t + et using annual data for the period 1960-94. Explain briefly how you would construct a test of the model's forecasting performance using additional data for the period 1995-98. Solution. First, estimate the model and obtain estimations for the coefficients a, b1, b2, b3 using 1960-94 data. Then, obtain forecast for the 1995-98 based on estimated model together with errors of forecast. So, the intervals for the values for the 1995-98 will be obtained. After this one can check whether actual data fit into the obtained intervals or not. Also, one can check how far are the actual values from the forecast. Problem 2 Describe briefly how you would test whether the OLS residuals from the linear regression model Yt = a + bXt + ut are serially correlated. Outline how you would modify the specification of your model, or the

want to read more? →