Ferf

ID-nummer: 0836342

0837063

TERM PAPER

at Handelshøyskolen BI

Multivariate Statistics

Eksamenskode og navn:

GRA 60361 – Multivariate Statistics

Innleveringsdato:

26.11.2010

Studiested:

BI OSLO

Table of contents

Problem 1: Arm Race Theory....................................................p. 1

Problem 2: Singular Value Decomposition..............................p. 4

Problem 3: Exploratory and Comfirmatory Factor Analysis....p. 9

Problem 4: Drinking and Driving..............................................p. 13

Problem 5: Equivalent Models...................................................p. 17

Attachment.................................................................................p. 20

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Problem 1: Arms Race Theory

A) Based on these assumptions formulate a model for the armament expenditures of the two nations. Draw a path diagram of this model and write the corresponding equations in LISREL notations.

US-Expenditure

E(US) = α + β1USSRt-1 + β2USt-1 + μ

USSR-Expenditure

E(USSR) = α + β1USt-1 + β2USSRt-1 + μ

B) Use the number of nuclear explosions shown in Table 1 as a proxy for armament expenditures; estimate model A using LISREL. Estimate the model separately for the periods 1950-1958 and 1962-1973 and compare the two models. To what extent are the models the same or different for these two periods?

We use a simple regression model in LISREL to estimate two separate equations for US and USSR. There are no latent variables in this system, only observable. This is a time series model. Although it is possible to estimate a consistent model using OLS, there might be problematic issues regarding forecast using OLS. OLS is more suited to estimate models using cross sectional data. We believe GLS would be a better method of estimating this model.

Estimation for period: 1950-1958:

US Expenditures

E(US) = 9.509 + 5.274USSRt-1 - 0.647USt-1 + μ

USSR Expenditures...