Question - Linear Probability Model

Reference no: EM132412209

Question - Linear Probability Model

Use 401KSUBS.wf1 data set for this exercise. It contains information on net financial assets (nettfa), family income (inc), a binary variable for eligibility in a 401(k) pension plan (e401k), and several other variables.

a) What fraction of families in the sample are eligible for participation in a 401(k) plan?

Open the data set in EViews.

b) Estimate a linear probability model explaining 401(k) eligibility in terms of income, age and gender. Include income and age in quadratic form, and report the results in the usual form.

c) Would you say that 401(k) eligibility is independent of income and age? What about gender? Explain.

d) Obtain the fitted values from the linear probability model estimated in part (ii). Are any fitted values negative or greater than one?

e) Add the variable pira as an explanatory variable to the linear probability model. Other things equal, if a family has someone with an individual retirement account, how much higher is the estimated probability that the family is eligible for a 401(k) plan? Is it statistically different from zero at the 10% level?

Reference no: EM132412209

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