Your Textbook Specifies a Simple Regression Problem for Two Time

question 29

Essay

Your textbook specifies a simple regression problem for two time periods for the years 1982 and 1988 as follows:
FatalityRate_i,1982 = β₀ + β₁BeerTax_i,1982 + u_i,1982
FatalityRate_i,1988 = β₀ + β₁BeerTax_i,1988 + u_i,1988
After subtracting the first equation from the second equation, the authors estimate the model and find a negative intercept.
a. Show how you would have to modify the two equations to allow for the presence of an intercept in the differenced model.
b. What would the relative magnitude of the modified model have to be for you to find a negative intercept?

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Definitions:

Voting Shares

Shares that give the shareholder the right to vote on matters of corporate policy and the selection of board members.

Investment Account

A financial account held at a bank or brokerage that is used to hold securities, stocks, bonds, and other investments.

Unamortized Acquisition Differential

The portion of the difference between the purchase price and the book value of an acquired entity that has not yet been amortized.

Equity Method

An accounting technique used by a company to record its investment in another company based on the profit or loss and other comprehensive income of the investee.