Directions: Download the dataset available on the class website (E3137S06_HFinal.xls) and answer the following questions. The dataset consists of 100 observations. The equation to be estimated will take the following (PRF) form below. There is a violation of one of the CLNRM assumptions. Your job is to follow the questions, identify it, and correct for it. (Hint - Be organized and methodological. The violation is pretty obvious provided you know what to look for.)

\(Y_{i}=\beta_{0}+\beta_{1} X 1_{i}+u_{i}\)

1. Estimate the PRF and examine the results. Identify the 'problem' using informal (graphical) techniques. Record the estimated results, and briefly describe what graphs you considered and how they helped you identify the problem.
2. Given your answer to question l. Identify the problem again using formal (statistical testing) techniques. Briefly describe what tests you conducted, and give the results of the only test that helped you identify the problem.
3. Now that you have identified the problem, fix it. In other words, you must transform the dataset such that a new dataset now satisfies all of the CLNRM assumptions. Estimate your new dataset, give the results, and verify that the problem you identified is no longer present in the transformed data (i.e. repeat parts 1 and 2 on this new dataset and show that the initial problem is gone).

Price: $11.96

Solution: The downloadable solution consists of 7 pages, 496 words and 9 charts.
Deliverable: Word Document