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Your Textbook Specifies a Simple Regression Problem for Two Time

question 14

Essay

Your textbook specifies a simple regression problem for two time periods for the years 1982 and 1988 as follows:
FatalityRatei,1982 = β0 + β1BeerTaxi,1982 + ui,1982
FatalityRatei,1988 = β0 + β1BeerTaxi,1988 + ui,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?


Definitions:

z

In statistics, 'z' often stands for the z-score, a measure of how many standard deviations an element is from the mean.

Standard Normal Random Variable

A random variable that follows a normal distribution with a mean of 0 and a standard deviation of 1.

Area

A measure of the extent of a surface or shape, calculated in square units.

z

A standard score that indicates how many standard deviations an element is from the mean of its distribution.

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