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Additional Problems on Regression and Time Series

Problem 1- The following table shows twelve annual observations on liquid money held per capital,
real income per capita, and interest rates in Spain. Compute a multiple regression model to estimate
future values for the liquid money held per capita. Would you trust this regression to make predictions?
Which of the independent variables have significant influence on the liquid money per capita?
Liquid Money per
Capita

Real Income per


Capita

Interest Rates

1762
1856
2010
2025
2186
2453
2408
2373
2190
2272
2390
2483

13091
12391
12905
13207
13881
14702
14968
14481
14034
14022
14554
14852

6.4
7.1
8.4
8.7
9.8
9.1
8.4
8.7
9.1
9.4
9.5
9.8

If the Government expects for next year an increase in the real income per capita of 2.1%, and interest
rates of 10.2%, could you give an expected value for the liquid money held per capita for next year?
Problem 2- The following table shows the percentage growths of the manufacturing sector, the
agricultural sector and of the exports in 24 developing countries. Build a regression model to predict the
increase in the manufacturing sector based on the increases in the exports and agricultural sectors. Can
the model be considered a "good" one for the prediction of the increase in manufacturing? Why? Which
of the two independent variables is more important in determining the increase in manufacturing? Why?
Manufacturing
sector growth (%)

Agricultural
sector growth(%)

Exports growth(%)

1.3
1
0.4
4.9
9.8
-2.1
2
5.8
5.2
-1.1
0.2
1.1
-12
-1.6
2.9
0.5
2.2
8
6.5
0.2
7.8
2.5
-0.2
6.1

3.4
1.4
0.1
1.8
5.6
-2.2
2.3
3
2.9
-2.3
0.3
1.4
4.8
-0.4
-0.6
.1.9
-3.5
3.1
3.3
0.1
5.3
2.3
3.1
10.3

-2.7
-6
-3.6
13.6
27.3
2.6
-9.5
4.4
9.2
-6.3
12
-7.2
-5.5
-2.5
5.4
1.6
4.7
19.9
-0.6
8.4
10.4
4.9
7.9
-19

Predict the growth in the manufacturing sector if the agricultural sector grows by 3.2%, and the exports
by 5%.

Problem 3.
The accompanying table shows twenty-two observations from Indonesian total government tax revenues
(except oil) (y), national income (x1) and the value added by oil as the percentage of national income
(x2) as measured by the gross national product price deflator.
Do the regression, and write a report summarizing your findings, including possible multicollinearity,
and test for heteroscedasticity. Design a new regression in case of heteroscedasticity.
Can you trust the predictions made by this regression? Which if the independent variables have
significant influence on the total government tax revenues?
It is estimated that national income will increase by 3.1% each year between the years 15 and 17, and
that the value added by oil will go up to 20.1% in year 17. What would the forecasted total government
revenues be for Year 17?
YEAR
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

y
177.9
245.4
287.3
360.1
585.5
796.5
993.9
1270.7
1586.7
1957.4
2437.2
3201.4
3584.8
4247.9
4912.5

x1
2507
3071
3367
4109
6069
9505
11266
14028
17097
20371
28452
40473
48590
53799
62550

x2
4.7
5.3
8.0
10.8
12.3
22.2
19.7
18.9
18.9
19.2
21.8
25.7
24.0
19.6
19.4

Problem 4.
The quarterly sales data (number of copies sold) for a college textbook over the past 3 years is as follows:
Quarter

Year1

Year2

Year3

1
2
3
4

1690
940
2625
2500

1800
900
2900
2360

1850
1100
2930
2615

Find the 4-quarter centered moving averages for the time series. Compute the seasonal indexes for the 4
quarters. When does the textbook publisher experience the largest seasonal index? Does this result
appear to be reasonable? Explain.
Re-do the regression with the deseasonalized values. What is your prediction for the sales in Quarters 1
and 2 of year 4?
Problem 5.
Air pollution control specialists in southern California monitor the amount of ozone, carbon dioxide,
and nitrogen dioxide in the air on an hourly basis. The hourly time series data exhibit seasonality, with
the levels of pollutants showing similar patterns over hours of the day. On July 15, 16 and 17, the

observed levels of nitrogen dioxide in a city's downtown area for the 12 hours from 6:00 am. to 6:00 pm.
were as follows:
July 15 25 28 35 50 60 60 40 35 30 25 25 20
July 16 28 30 35 48 60 65 50 40 35 25 20 20
July 17 35 42 45 70 72 75 60 45 40 25 25 25
Find the appropriate moving averages, the hourly seasonal indices, the deseasonalized series. Do the
regression, and predict the level of nitrogen dioxide at 8:00 am. on July 18.
Problem 6.
The personnel department of an industrial firm wants to develop a model which will predict the weekly
salaries based on the ages of its administrative workers and on the amount of time they have worked in
the firm. A sample of 16 administrative workers is selected and the following results are obtained:

Worker

Weekly Salary($)

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

839
946
870
718
802
812
748
791
752
729
656
874
606
729
728
792

Time worked(months)

Age(years)

330
569
375
113
215
343
252
348
352
256
87
337
42
129
216
327

46
65
57
47
41
59
45
57
55
61
28
51
28
37
46
56

Find the multiple regression equation for the model. Check if multicollinearity exists, and correct the
regression if it does. What would the weekly salary of a 50-year old person who has been working in the
firm for 290 weeks be, according to this model?
Problem 7.
A company which sells big consumer products wants to measure the effectiveness of its product
promotion system. Two types of promotion are to be studied in particular: radio-television ads, and
newspaper ads. 22 cities with approximately equal populations are selected for a one-month test study.
Each city is assigned a budget for radio-television ads, as well as a budget for newspaper ads. The
amount of sales in each city during the month is then registered. The following table shows the sales, as
well as the money spent on both types of ads in each city (all the quantities are in thousand US Dollars):
City

Sales

Ad. in radio y TV(x1000$)

Ad.in newspapers(x1000$)

1
2
3
4
5
6
7
8
9

973
1119
875
625
910
971
931
1177
882

0
0
25
25
30
30
35
35
40

40
40
25
25
30
30
35
35
25

10
11
12
13
14
15
16
17
18
19
20
21
22

982
1628
1577
1044
914
1329
1330
1405
1436
1521
1741
1866
1717

40
45
45
50
50
55
55
60
60
65
65
70
70

25
45
45
0
0
25
25
30
30
35
35
40
40

Find the multiple regression equation. Which variables have influence on the sales? Is there
multicollinearity? Correct the regression in case there is. Check if there is heteroscedasticity, and correct
the regression in case it exists. What would the predicted sales be if 90 thousand dollars were to be spent
on radio-TV ads, and 25 thousand on newspaper ads?

Problem 8.
The ice-cream sales of the "Heladera Roma", located in calle Alcal, for the 2002-04 period were:
Year

Trimester

Sales(x1000 Euros)

2002

1
2
3
1
2
3
1
2
3

87.1
93.7
80.2
89.2
95.2
81.3
89.4
95.4
80.9

2003
2004

Analyze the time series, obtain the trend as well as the seasonal indices. Would your predictions using
this model be reliable? If so, predict the sales for the first two trimesters of 2005.