Introductory Econometrics: A Modern Approach 6th Edition by Jeffrey M Wooldridge

Exercise 12

Using data from 1988 for houses sold in Andover, Massachusetts, from Kiel and McClain (1995), the following equation relates housing price (price) to the distance from a recently built garbage incinerator (dist):

(i) Interpret the coefficient on log(dist). Is the sign of this estimate what you expect it to be?

(ii) Do you think simple regression provides an unbiased estimator of the ceteris paribus elasticity of price with respect to dist? (Think about the city’s decision on where to

put the incinerator.)

(iii) What other factors about a house affect its price? Might these be correlated with distance from the incinerator?

Step 1 of 6

Simple regression is a study of effects of an explanatory or independent variable on the dependent variable. It studies the correlation between the two variables where only of them is an explanatory variable.

It is written in the following form:

Here,

‘x’ = Independent or explanatory variable

‘y’ = Dependent variable

‘ß₀’ = Intercept term’

‘ß₁’ = Slope coefficient

‘u’ = Error term