University of Hong Kong

Introductory Econometrics (ECON0701), Spring 2014

Assignment #4: Due March 21, 2014
1. (7.2) The following equations were estimated using the data in bwght.raw:
\
ln(/nq/t) = 4.66 0.0044 ciq: + 0.0093 ln(faminc) + 0.16 jaritj
(0.22) (0.0009) (0.0059) (0.006)
+0.027 :a|c + 0.055 n/itc
(0.010) (0.013)
: = 1, 388, 1
2
= 0.0472
and
\
ln(/nq/t) = 4.65 0.0052 ciq: + 0.0110 ln(faminc) + 0.17 jaritj
(0.38) (0.0010) (0.0085) (0.006)
+0.034 :a|c + 0.045 n/itc 0.0030 :ot/cdnc + 0.0032 )at/cdnc
(0.011) (0.015) (0.0030) (0.0026)
: = 1, 191, 1
2
= 0.0493
where /nq/t is birth weight, in pounds, ciq: is the average number of cigarettes the mother
smoked per day in pregnancy, jaritj is the birth order of the child, )a:i:c is annual family
income, :ot/cdnc is years of schooling for the mother, )at/cdnc is years of schooling for the
father, :a|c is a dummy variable indicating that the child is male and n/itc is a dummy
variable indicating if the child is white.
(a) In the rst equation, interpret the coecient on the variable ciq:. In particular, what
is the eect on birth weight from smoking 10 more cigarettes per day?
(b) How much more is a white child predicted to weigh than a nonwhite child, holding the
other factors in the rst equation xed? Is the dierence statistically signicant?
(c) Comment on the estimated eect and statistical signicance of :ot/cdnc.
(d) From the given information, why are you unable to compute the F statistic for joint
signicance of :ot/cdnc and )at/cdnc? What would you have to do to calculate the F
statistic?
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2. (7.4) An equation explaining chief executive ocer salary is
\
ln(:a|arj) = 4.59 + 0.257 ln(:a|c:) + 0.11 roc + 0.158 )i:a:cc
(0.30) (0.032) (0.004) (0.089)
+0.181 co::jrod 0.283 nti|itj
(0.085) (0.099)
: = 209, 1
2
= 0.357
The data used are in ceosal1.dta, where )i:a:cc, co::jrod, and nti|itj are binary variables
indicating the nancial, consumer products, and utilities industries. The omitted industry
is transportation.
(a) Compute the approximate percentage dierence in estimated salary between the utility
and transportation industries, holding :a|c: and roc xed. Is the equation statistically
signicant at the 1% level?
(b) Use the equation 100
h
exp

c
,
1

1
i
to obtain the exact percentage dierence in esti-
mated salary between the utility and transportation industries and compare this with
the answer obtained in part (a).
(c) What is the approximate percentage dierence in expected salary between the consumer
products and nance industries? Write an equation that would allow you to test whether
the dierence is statistically signicant.
3. (7.5) Consider the following regression model for analyzing the eects of computer ownership
on college grade point average
co|G1 = ,
0
+ ,
1
1C + ,
2
/:G1 + ,
3
CT + n
where co|G1 is the students GPA in college, 1C is a dummy variable indicating if the
student owns his or her own computer or not, /:G1 is the students GPA in high school
and CT is the students score on the ACT examination. Let :o1C be a dummy variable
equal to one if the student does not own a computer, and zero otherwise.
(a) If :o1C is used in place of 1C in this equation, what happens to the intercept in
the estimated equation? What will be the coecient on :o1C? (Hint: Write 1C =
1:o1C and plug this into the equation
\
co|G1 =
c
,
0
+
c
,
1
1C+
c
,
2
/:G1+
c
,
3
CT)
(b) What will happen to the R squared value if :o1C is used in place of 1C?
(c) Should 1C and :o1C both be included as independent variables in the model? Explain.
4. (7.7) Consider the following linear probability model of womens labor force participation
i:|) = ,
0
+ ,
1
:ni)ci:c + ,
2
cdnc + ,
3
exper
+,
4
exper
2
+ ,
5
aqc + ,
6
/id:|t6 + ,
7
/id:qc6 + n
where i:|) is a binary variable equal to one if the woman is in the labor force, :ni)ci:c
is husbands income, cdnc is years of education, exper is years of working experience, aqc is
age, /id:|t6 is the number of children less than six years old, and /id:qc6 is the number of
children six years old or more. Now suppose we dene ont|) to be one if the woman is out
of the labor force, and zero otherwise. Annex A shows regression results from the estimation
of this model.
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(a) If we regress ont|) on all the independent variables in the equation, what will happen
to the intercept and slope estimates? (Hint: i:|) = 1 ont|). Plug this into the
equation
d
i:|) = ,
0
+ ,
1
:ni)ci:c + ... and rearrange.)
(b) What will happen to the standard errors on the intercept and slope estimates?
(c) What will happen to the R squared?
5. (7.11) A model that allows major league baseball player salary to dier by position is
ln(:a|arj) = ,
0
+ ,
1
jcar: + ,
2
qa:c:jr + ,
3
/aq + ,
4
/r::jr + ,
5
r/i:jr
+,
6
rn::jr + ,
7
)|djcrc + ,
8
a||:tar + ,
9
)r:t/a:c +
,
10
:c:d/a:c + ,
11
t/rd/a:c + ,
12
:/rt:toj + ,
13
catc/cr + n
where outeld is the base group. The variables )r:t/a:c through catc/cr represent other
positions (rst base, second base, third base, shortstop, and catcher respectively).
(a) State the null hypothesis that, controlling for other factors, catchers and outelders
earn, on average, the same amount. Test this hypothesis using the data in mlb1.dta
and comment on the size of the estimated salary dierential.
(b) State and test the null hypothesis that there is no dierence in average salary across
positions, once other factors have been controlled for.
(c) Are the results from parts (a) and (b) consistent? If not, explain what is happening.
1 Annex A
. regress inlf nwifeinc educ exper expersq age kidslt6 kidsge6
Source | SS df MS Number of obs = 753
-------------+------------------------------ F( 7, 745) = 38.22
Model | 48.8080578 7 6.97257969 Prob > F = 0.0000
Residual | 135.919698 745 .182442547 R-squared = 0.2642
-------------+------------------------------ Adj R-squared = 0.2573
Total | 184.727756 752 .245648611 Root MSE = .42713
------------------------------------------------------------------------------
inlf | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
nwifeinc | -.0034052 .0014485 -2.35 0.019 -.0062488 -.0005616
educ | .0379953 .007376 5.15 0.000 .023515 .0524756
exper | .0394924 .0056727 6.96 0.000 .0283561 .0506287
expersq | -.0005963 .0001848 -3.23 0.001 -.0009591 -.0002335
age | -.0160908 .0024847 -6.48 0.000 -.0209686 -.011213
kidslt6 | -.2618105 .0335058 -7.81 0.000 -.3275875 -.1960335
kidsge6 | .0130122 .013196 0.99 0.324 -.0128935 .0389179
_cons | .5855192 .154178 3.80 0.000 .2828442 .8881943
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