1. 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) Estimate the following equation and report the results:
ln(PRICE) = b1 + b2SQFT100 + b3AGE + b4AGE2 + e "
(b) 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?