Exercise

# Crisis structural break: III

Now you can put everything together to perform the Chow test.

The 2005 - 2010 data have been split into two available DataFrames, `before`

and `after`

, using *June 30, 2008* as the structural break point (identified in the first exercise in this series). The columns of both DataFrames are `mort_del`

and `returns`

for mortgage delinquency data and returns data, respectively.

You'll run two OLS regressions on `before`

and `after`

, regressing the `returns`

column against the `mort_del`

column in each DataFrame, and derive the sum-of-squared residuals.

Then you'll compute the Chow test statistic as in the video, using `ssr_total`

(provided from the second exercise) and the derived residuals. The critical **F**-value at 99% confidence is around **5.85**. What value do you find for your test statistic?

Instructions

**100 XP**

- Add an OLS intercept term to
`mort_del`

for`before`

and`after`

. - Fit an OLS regression of the
`returns`

column against the`mort_del`

column, for`before`

and`after`

. - Place the sum-of-squared residuals into
`ssr_before`

and`ssr_after`

, for`before`

and`after`

, respectively. - Create and display the Chow test statistic.