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Hou Chenxue
ECON 6001 Applied Econometrics
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Question1(E4.2)
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Question1(E4.2)
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Question1(E4.2)
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Question1(E4.2)
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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.
Hou Chenxue (HKU)
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Question2
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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.)
Hou Chenxue (HKU)
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Question3
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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.
Hou Chenxue (HKU)
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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)
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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.
Hou Chenxue (HKU)
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