Assignment 1 suggested solutions (Tutorial2)

Hou Chenxue
ECON 6001 Applied Econometrics

October 10, 2014

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Question1(E4.2)

(a) Construct a scatterplot of average course evaluation (Course

Eval) on the professors beauty(Beauty). Does there appear to be a
relationship between the variables?
Solution:
There appears to be a weak positive relationship between course
evaluation and the beauty index.

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Question1(E4.2)

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Question1(E4.2)

(b) Run a regression of average course evaluation (Course Eval) on

the professors beauty(Beauty). What is the estimated intercept?
What is the estimated slope? Explain why the estimated intercept is
equal to the sample mean of Course Eval.
Solution:
\ = 4.00 + 0.133 Beauty .The variable Beauty has a mean
CourseEval
that is equal to 0; the estimated intercept is the mean of the
dependent variable (Course Eval) minus the estimated slope (0.133)
times the mean of the regressor (Beauty). Thus, the estimated
intercept is equal to the mean of Course Eval.

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Question1(E4.2)

(c) Professor Watson has an average value of Beauty,while Professor

Stocks value of Beauty is one standard deviation above the average.
Predict Professor Stocks and Professor Watsons course evaluation.
Solution:
The standard deviation of Beauty is 0.789. Thus Professor Watsons
predicted course evaluations = 4.00 + 0.133 0 = 4.00. Professor
Stocks predicted course evaluations
= 4.00 + 0.133 (0 + 0.789) = 4.105.

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Question1(E4.2)
(d) Comment on the size of the regressions slope. Is the estimated
effect of Beauty on Course Eval large or small? Explain what you
mean by large or small.
Solution:
The standard deviation of course evaluations is 0.55 and the standard
deviation of beauty is 0.789. A one standard deviation increase in
beauty is expected to increase course evaluation by
0.133 0.789 = 0.105, or 1/5 of a standard deviation of course
evaluations. The effect is small.
(e) Does Beauty explain a large fraction of the variance in evaluations
across course? Explain.
Solution:
The regression R 2 is 0.036, so that Beauty explains only 3.6% of the
variance in course evaluations.
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Question2

2.The following graph shows a positive correlation between the

strength of state gun laws (how tough state regulation is on gun
ownership) and gun violence outcomes across states in the US as of
2012. Does the positive correlation mean that introducing stronger
measures to regulate gun ownership can reduce gun violences? Play
devils advocate and argue that correlation found in the graph might
not necessarily imply causation. Note:High rankings on the x axis and
the y axis mean strong gun laws and fewer gun violences, respectively.
R 2 is the correlation coefficient estimate.

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Question2

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Question2
Solution:
Probably there is an omitted variable that affects strength of gun laws
and gun violences simultaneously. For example, it is known that more
people in the coastal states (northeastern and western states) are
progressive and such politcal attitudes are likely to have favored
representatives who believe in governments active role to improve
public welfare. Those representatives could have supported strong
regulation of gun ownership. At the same time, people in these states
are likely to prefer relying on government and public law enforcement
to resolve disputes rather than resolving by themselves. Eliminating
guns surely reduces gun violences. But the estimated effect of
strengthening gun regulation is likely to be biased unless we control
for some omitted factors. (Argument with different examples, if
shown that a suggested omitted factor satisfies the two conditions for
omitted variable bias, is fine.)
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Question3

(a) Interpret the coefficient estimate on age.

Solution:
If a person gets one year older, then time he/she spends sleeping
increases by 3.54 minutes per week.
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Question3
(b) It is likely that adults trade off sleep for work. If you are also
given the data for time spent working, measured in minutes per week,
and include this variable (say totwrok) in the above regression, what
would you expect the sign of the coefficient on totwork to be?
Solution:
Since it is likely that a person working longer sleeps less, the
coefficient on totwork will be negative.
(c) Part (b) suggests that there might be an omitted variable bias in
the original simple regression because totwork is not included. For an
omitted variable bias to exist, what additional condition needs to be
met? Do you think this condition holds in reality? If yes, what do you
expect the sign of the omitted variable bias is?
Solution:
For an omitted variable bias to occur, totwork must be correlated with
age, which is quite plausible. Among adults, it is likely that people
work less as they grow old. Therefore totwork and age are likely to be
negatively correlated. There exists a positive omitted variable bias.
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Question4(E6.3)
Using the data set Growth described in E4.4, but excluding the data
for Malta, carry out the following exercises.
(a) Construct a table that shows the sample mean, standard
deviation, and minimum and maximum values for the series
Growth,TradeShare,YearsSchool, Oil, Rev-Coups ,Assasinations,
RGDP60.Include the appropriate unit for all entries.
solution:

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Question4(E6.3)

(b) Run a regression of Growth on TradeShare, YearSchool,

Rev-Coups ,Assasinations, RGDP60.What is the value of the
coefficient on Rev-Coups? Interpret the value of this coefficient. Is it
large or small in a real-world sense?
Solution:
The coefficient on Rev-Coups is -2.15. An additional revolution in one
year, reduces the average year growth rate by 2.15% .

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Question4(E6.3)
(c) Use the regression to predict the average annual growth rate for a
country that has average values for all regressors.
Solution:
Same as Question1(E4.2) (c).
(d) Repeat (c)but now assume that the countrys value for
TradeShare is one standard deviation above the mean.
Solution:
Same as Question1(E4.2) (c).
(e) Why is Oil omitted from the regression? What would happen if it
were included?
Solution:
All observations of Oil are 0. So the outcome of regression including
Oil is the same as the outcome of regression without Oil.

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Question5(E7.4)
Using the data set Growth described in E4.4, but excluding the data
for Malta, carry out the following exercises.
(a) Run a regression of Growth on TradeShare, YearSchool,
Rev-Coups ,Assasinations, RGDP60. Construct a 95% confidence
interval for the coefficient on TradeShare. Is the coefficient
statistically significant at the 5% level?
Solution:
The 95% confidence interval is 1.34 1.96 0.88 or -0.42 to 3.10.
The coefficient is not statistically significant at the 5% level.
(b) Test whether, taken as a group,YearSchool, Rev-Coups,
Assasinations, RGDP60 can be omitted from the regression. What is
the p-value of the F-statistic?
Solution:
The F-statistic is 8.18 which is larger than 1% critical value of 3.32.
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