Reference no: EM13881455

In studying the purchase of durable goods Y (Y = 1 if purchased, Y = 0 if no purchase) as a function of several variables for a total of 762 house- holds, Janet A. Fisher* obtained the following LPM results:

Explanatory variable	Coef?cient	Standard error
Constant	0.1411	-
1957 disposable income, X1	0.0251	0.0118
(Disposable income = X1)2, X2	-0.0004	0.0004
Checking accounts, X3	-0.0051	0.0108
Savings accounts, X4	0.0013	0.0047
U.S. Savings Bonds, X5	-0.0079	0.0067
Housing status: rent, X6	-0.0469	0.0937
Housing status: own, X7	0.0136	0.0712
Monthly rent, X8	-0.7540	1.0983
Monthly mortgage payments, X9	-0.9809	0.5162
Personal noninstallment debt, X10	-0.0367	0.0326
Age, X11	0.0046	0.0084
Age squared, X12	-0.0001	0.0001
Marital status, X13 (1 = married)	0.1760	0.0501
Number of children, X14	0.0398	0.0358
(Number of children = X14)2, X15	-0.0036	0.0072
Purchase plans, X16 (1 = planned; 0 otherwise)	0.1760	0.0384

R 2 = 0.1336

a. Comment generally on the ?t of the equation.

b. How would you interpret the coef?cient of -0.0051 attached to checking account variable? How would you rationalize the negative sign for this variable?

c. What is the rationale behind introducing the age-squared and number of children-squared variables? Why is the sign negative in both cases?

d. Assuming values of zero for all but the income variable, ?nd out the conditional probability of a household whose income is $20,000 pur- chasing a durable good.

e. Estimate the conditional probability of owning durable good(s), given: X1 = $15,000, X3 = $3000, X4 = $5000, X6 = 0, X7 = 1, X8 = $500, X9 = $300, X10 = 0, X11 = 35, X13 = 1, X14 = 2, X16 = 0.