## Solutions Manual for Econometrics, Fourth Edition

By Badi H. Baltagi

**Contents:**

1 What is Econometrics?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2 A Review of Some Basic Statistical Concepts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

3 Simple Linear Regression. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

4 Multiple Regression Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

5 Violations of the Classical Assumptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

6 Distributed Lags and Dynamic Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123

7 The General Linear Model: The Basics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153

8 Regression Diagnostics and Specification Tests . . . . . . . . . . . . . . . . . . . . . . . . . 179

9 Generalized Least Squares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215

10 Seemingly Unrelated Regressions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235

11 Simultaneous Equations Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261

12 Pooling Time-Series of Cross-Section Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319

13 Limited Dependent Variables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347

14 Time-Series Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409

**Preface:**

This manual provides solutions to selected exercises from each chapter of the sixth edition of Econometrics by Badi H. Baltagi.1 Eviews and Stata as well as SAS_ programs are provided for the **empirical exercises**. Some of the problems and solutions are obtained from Econometric Theory (ET) and these are reprinted with the permission of Cambridge University Press. I would like to thank Peter C.B. Phillips, and past editors of the Problems and Solutions section, Alberto Holly, Juan Dolado and Paolo Paruolo for their useful service to the econometrics profession. I would also like to thank my colleague (from Texas A&M) James M. Griffin for providing many empirical problems and data sets. I have also used three empirical data sets from Lott and Ray (1992). The reader is encouraged to apply these econometric techniques to their own data sets and to replicate the results of published articles. Instructors and students are encouraged to get other data sets from the Internet or journals that provide backup data sets to published articles. The Journal of Applied Econometrics and the **American Economic** Review are two such journals. In fact, the Journal of Applied Econometrics has a replication section for which I served as an editor from 2003–2018. In my course I require my students to replicate an empirical paper.

I would like to thank my students Wei-Wen Xiong, Ming-Jang Weng, Kiseok Nam, Dong Li, Gustavo Sanchez, Long Liu, Junjie Shu, and Liu Tian who solved several of the exercises. I would also like to thank Martina Bihn, Johannes Glaeser and Judith Kripp at Springer for their continuous support and professional editorial help.

Please report any errors, typos or suggestions to: Badi H. Baltagi, Center for Policy Research and Department of Economics, Syracuse University, Syracuse, New York 13244-1020, Telephone (315) 443-1630, Fax (315) 443-1081, or send Email to [email protected]. https://pbaltagi.wix.com/badibaltagi.

**Data:**

The data sets used in this text can be downloaded from the Springer website. The address is: http://www.springer.com/978-3-642-54547-4. Please check the link “Samples, Supplements, Data Sets” from the right-hand column. There is also a readme file that describes the contents of each data set and its source.

**Reference: **Lott,W.F. and S. Ray (1992), Econometrics Problems and Data Sets (Harcourt, Brace Jovanovich: San Diego, CA).