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Econometrics Practical 2

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Md. Rayhan Ali Rejvi
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30 views2 pages

Econometrics Practical 2

Uploaded by

Md. Rayhan Ali Rejvi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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1. Use the data set in Practical1_question1 for this problem.

(i) Estimate the model and report the results in the usual form.
wage = β0 + β1 educ + β2 exper + β3 tenure + β4 married + β5 black + β6 south + β7
urban + u
(ii) Add the log of dependent variable (wage) and report the result. Holding other
factors fixed, what is the approximate difference in monthly salary between blacks
and nonblacks? Is this difference statistically significant?
(iii) Add the variables exper2 and tenure2 to the equation and show that they are
insignificant at even the 20% level.
(iv) Extend the model of (i) to allow the return to education to depend on race and test
whether the return to education does depend on race.
(v) Again, start with the original model, but now allow wages to differ across four
groups of people: married and black, married and nonblack, single and black, and
single and nonblack. What is the estimated wage differential between married
blacks and married nonblacks?

2. Use the data in Practical2_question2 for this exercise. The equation of interest is

sleep = β0 + β1 totwrk+ β2 educ + β3 age + β4 age2+ β5 yngkid + u

Estimate this equation separately for men and women and report the results in the usual form.
Are there notable differences in the two estimated equations?

3. Use the data in practical2_question3 for this exercise. The binary variable to be explained
is approve, which is equal to one if a mortgage loan to an individual was approved. The key
explanatory variable is white, a dummy variable equal to one if the applicant was white. The
other applicants in the data set are black and Hispanic.

To test for discrimination in the mortgage loan market, a linear probability model can be
used: approve = β0 + β1 white+ other factors

(i) If there is discrimination against minorities, and the appropriate factors have been
controlled for, what is the sign of β1?
(ii) Regress approve on white and report the results in the usual form. Interpret the
coefficient on white. Is it statistically significant? Is it practically large?
(iii) As controls, add the variables hrat, obrat, loanprc, unem, male, married, dep, sch,
cosign, chist, pubrec, mortlat1, mortlat2, and vr. What happens to the coefficient
on white? Is there still evidence of discrimination against nonwhites?
(iv) Now, allow the effect of race to interact with the variable measuring other
obligations as a percentage of income (obrat). Is the interaction term significant?

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