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ECON 584

Fall 2022

Homework #4

1. Review the Bulgari and RC hotel (AYANA Resort) by visiting their respective websites. Describe any stylized differences that are apparent to you in a brief fashion. How many rooms and villas are at each property at present? (1 pt)

2. Discuss two weaknesses of the Owsley report (main and supplemental). Discuss two weaknesses of the Dubin report (main and supplemental).(4 pts)

3. Locate data for tourist arrivals to Bali since 2005. Cite a website for this. ( 1 pts)

4. Could exchange rate fluctuations affect the regression models offered by Dr. Dubin in the Bali case? Hint: if exchange rate fluctuations were not included in the regression models by Dubin (or by Owsley), should they have been included and how should they have been included?(4 pts)

5. Omitted variable bias.

Suppose that true model is

The model Mr. Owsley estimated was

where  is the number of tourist arrivals to Bali.  is the month number in Mr. Owsley’s reports. It acts like “trend” in Canada Post and is essentially the observation number . (Subscript  here refers to omitted variable bias)

If we ignore  and  and a simple version of true model is , and  then we can get

 is the bias, which equals to the coefficient of regression of  on .This is the formula for omitted variable bias; you may refer to https://en.wikipedia.org/wiki/Omitted-variable_bias for more details.

In above equation,  was omitted when Mr. Owsley estimated the model. Please show how the omitted variable would influence the estimate of the coefficient of . (Hint: Recall the trend and hotel capacity are positively correlated.) (extra credits: 3 pts)