Find a interval estimate for the percentage increase

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Reference no: EM132368478

Econometrics Problems -

Problem One (to be done before the lab session) Do Problem on pages 200-201 of the textbook Principles of Econometrics". You can exclude (d).

Consider the following model that relates the proportion of a household's budget spent on alcohol WALC to total expenditure TOTEXP, age of the household head AGE, and the number of children in the household NK.

WALC = β₁ + β₂ln(TOTEXP) + β₃AGE + β₄NK + e

The data in the file London.dat were used to estimate this model. Note that only households with one or two children are being considered. Thus, NK takes only the values one or two. Output from estimating this equation appears in Table below.

Table - Output for Exercise

Dependent Variable: WALC
Included observations: 1519
Variable	Coefficient	Std. Error	t-Statistic	Prob.
C	0.0091	0.0190		0.6347
ln(TOTEXP)	0.0276		6.6086	0.0000
AGE		0.0002	-6.9624	0.0000
NK	-0.0133	0.0033	-4.0750	0.0000

R-squared			Mean dependent var	0.0606
S.E. of regression			S.D. dependent var	0.0633
Sum of squared resid	5.752896

(a) Fill in the following blank spaces that appear in this table.

(i) The t-statistic for b₁

(ii) The standard error for b₂

(iii) The estimate b₃

(iv) R²

(v) σ^{^}

(b) Interpret each of the estimates b₂, b₃, and b₄.

(d) Test the hypothesis that the budget proportion for alcohol does not depend on the number of children in the household. Can you suggest a reason for the test outcome?

Problem Two (to be done during the lab session)

Download the files cps4_small.wf1 and cps4_small.def and complete exercise on pages 207 and 208 of the textbook. Skip parts (g) and (i).

Use the data in cps4_small.dat to estimate the following wage equation

ln(WAGE) = β₁+ β₂EDUC + β₃EXPER + β₄HRSWK + e

(a) Report the results. Interpret the estimates for β₂, β₃, and β₄. Are these estimates significantly different from zero?

(b) Test the hypothesis that an extra year of education increases the wage rate by at least 10% against the alternative that it is less than 10%.

(d) Re-estimate the model with the additional variables EDUC x EXPER, EDUC², and EXPER². Report the results. Are the estimated coefficients significantly different from zero?

(e) For the new model, find expressions for the marginal effects ∂ln(WAGE)/∂EDUC and ∂n(WAGE)/∂EXPER.

(f) Estimate the marginal effect ∂ln(WAGE)/∂EDUC for two workers Jill and Wendy; Jill has 16 years of education and 10 years of experience, while Wendy has 12 years of education and 10 years of experience. What can you say about the marginal effect of education as education increases?

(g) Test, as an alternative hypothesis, that Jill's marginal effect of education is greater than that of Wendy. Use a 5% significance level.

(h) Estimate the marginal effect ∂In( WAGE)/∂EXPER for two workers Chris and Dave; Chris has 16 years of education and 20 years of experience, while Dave has 16 years of education and 30 years of experience. What can you say about the marginal effect of experience as experience increases?

(i) For someone with 16 years of education, find a 95% interval estimate for the number of years of experience after which the marginal effect of experience becomes negative.

Attachment:- Assignment Files.rar

Reference no: EM132368478

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