QUESTION

# The le br2.dta contains data on 1080 houses sold in Baton Rouge, Louisiana, during mid-2005.

The le br2.dta contains data on 1080 houses sold in Baton Rouge, Louisiana, during

mid-2005. We will be concerned with the selling price (PRICE), the size of the house

in square feet (SQFT), and the age of the house in years (AGE). Dene a new variable

that measures house size in terms of hundreds of square feet, SQFT100=SQFT/100.

(a) (10 points) Estimate the following equation and report the results:

ln(PRICE) = b1 + b2SQFT100 + b3AGE + b4AGE2 + e "

(b) (90 points) Compare the log-linear model above with the following linear model:

PRICE = b1 + b2SQFT100 + b3AGE + b4AGE2 + e"

[HINT: Look at the residual plots, the JB tests and the R-squared. You may need to refer to exercise 4.14]. Which model would you chose?

Please make sure you do not use the sk command in STATA instead of the JB test as the sk test is a different test of normality (not the JB test). You need to compute the JB test statistic by hand, using the numbers from your STATA output.