Question

The Institute of Econometric Excellence’s report “Adult Males Living with Parents” states the following:

The examination of the percentage of males aged 25-34 living with their parents across 1000 US cities reveals that three economic and three sociological variables were deemed determinative. In a solely economic regression model, called Model E, the three economic variables alone explained 45% of the changes in cohabitation. In a solely sociological regression model, called Model S, the three sociology variables alone explained 47% of the changes in cohabitation. To determine whether the economic variables added any predictive power to Model S, and to avoid variables confounding one another, the researchers added the predicted percentages of cohabitation from Model E to Model S. The coefficient for predicted cohabitation was 2.5 with a standard error of 1.0. The authors then added the predicted percentages of cohabitation from Model S to Model E and found that the coefficient for predicted cohabitation was -3.0 with a standard error of 1.0.

The econometric term for the problem of variables “confounding” one another is a)________ (serial correlation/multicollinearity/heteroscedasticity) and it would appear in regression results in in terms of b)_______ (VIFs exceeding 5/Durbin-Watson statistic near 2/failing to reject the H0 of a White test).

The test procedure the researchers are running by adding the predicted cohabitation variables to different regression models is the c)________ (Ramsey RESET /Davidson-MacKinnon J/Quandt-Andrews Breakpoint test).

According to these results, if our sole desire is to accurately predict the percentage of cohabitation in a city, the variables that should be included in a regression model are the d)________ (sociology only/economic only/sociology and economic) because the test reveals the e)_______ (sociology only/economic only/sociology and economic) are statistically significant.

Answer 1

The econometric term for the problem of variables "confounding" one another is a) multicollinearity (serial correlation / multicollinearity / heteroscedasticity) and it would appear in regression results in terms of b) Durbin-Watson statistic near 2 (VIFs exceeding 5 / Durbin-Watson statistic near 2 / failing to reject the H0 of a White test).

The test procedure the researchers are running by adding the predicted cohabitation variables to different regression models is the c) Davidson-MacKinnon J (Ramsey RESET / Davidson-MacKinnon J / Quandt-Andrews Breakpoint test).

According to these results, if our sole desire is to accurately predict the percentage of cohabitation in a city, the variables that should be included in a regression model are the d) sociology only (sociology only / economic only / sociology and economic) because the test reveals the e) sociology and economic (sociology only / economic only / sociology and economic) are statistically significant.