identify which pair/ pairs of independent variables may be highly correlated.

Data 7-12 has data on the list price of 82 new 1995 American-made cars

Data 7-12 has data on the list price of 82 new 1995 American-made cars

Question

HW #8
Due: 11/06/15
#1) Data 7-12 has
data on the list price of 82 new 1995 American-made cars and a variety of
characteristics of the car. The
dependent variable is the PRICE, which is the list price of the vehicle in
thousand of dollars.
The explanatory variables are:
Hatch = 1 for a hatchback, 0 for a sedan
Wbase = wheelbase in inches.
Length = length of the car in inches
Width = width of the car in inches
Height = height of the car in inches.
Weight = weight of the car in inches
Cyl = number of cylinders in the engine.
Liters = engine displacement
Gasmpg = estimated gas mile per gallon (City and freeway
average)
Trans = 1 for automatic, o otherwise.
Without
running the regression yet, identify which pair/ pairs of independent
variables may be highly correlated.
Explain why you think that is so.
Estimate
the model and show the results.
Give an interpretation for the coefficients of the dummy variables
“hatch” and “trans.” Do the signs
of the coefficients agree with your expectations? Explain.
What
step would you take in order to correct for multicollinearity? Explain why
you chose this solution.
2) DATA7-2 tabulates data on salaries and
employment characteristics 49
employees in a certain company. The dependent variable is WAGE (in \$).
The
explanatory variables are:
EDUC = Years
of education beyond 8th grade when hired (Range 1 – 11)

EXPER
= Number of years at the company (Range 1 – 23)

AGE
= Age of employee (25 – 64)

GENDER = 1 for male and 0 for female

RACE = 1 For white, 0 for non-white
Without running the regression
yet, identify which pair/ pairs of independent variables may be highly
correlated. Explain why you think
that is so.

b. Run
a correlation matrix for the explanatory variables. Based on your results, would you expect to
see multicollinearity between some of the variables? Which ones?
State
and explain the signs you expect for each explanatory variable.

Data 7-12 has data on the list price of 82 new 1995 American-made cars
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