Temple University

Department of Economics

Economics 8009

Using the data set consumption.txt which has the variables consumption, Ct, and disposable income, Yt, construct the variables ct = ln(Ct), diff C, yt = ln(Yt), and

diff Y. You will so Wald, Likelihood Ratio and Lagrange Multiplier tests in this homework. Most statistical software packages will do these at the touch of a button. However, you are to do them long hand. That is, write out the formulae and do the calculations by hand.


1. Estimate the coefficients of model and report the results.

2. Suppose that the disturbance, ut, in the model in question 1 is error dist. Write the log-likelihood function for the model.

3. Construct the Wald statistic for a test of the hypothesis that null01.

4. Construct the Lagrange Multiplier test statistic for the hypothesis that null02.

5. Construct the Likelihood Ratio test statistic for the hypothesis that error variance