University of Oregon Professor Caroline Weber

Department of Economics Winter 2015

Due: In Lab Week of January 20

Assignment #2
Economics 421
Introduction to Econometrics

This data set was used in the analysis for “Where is the Land of Opportunity? The Geography of
Intergenerational Mobility in the United States” by Chetty, Hendren, Kline and Saez, circulated
as NBER Working Paper No. 19843 in 2014. Note that for this assignment, you will not use their
primary dependent variable, absolute upward mobility, but rather another measure of mobility the
authors also consider, the probability that an individual is in the top fifth of the income distribution
if their parents were in the bottom fifth. This measure is also very interesting and using it will
keep this problem set from being overly complicated.
For each part of this assignment, paste the code in a word document along with any graphs or
tables you estimate. Add any relevant discussion. Round all answers to four decimal places.

1. Oops, we left some variables out

(a) Read Chetty, Hendren, Kline and Saez (2014). What is the main question asked in this
paper? How do they attempt to answer this question?
(b) Import the data set hw2.dta. Type the command “describe” in Stata. Describe will
list the variable names and their labels. The labels will give you a description of each
variable.
(c) Regress prob q1 q5 on cs born f oreign. Write down the sample regression equation that
corresponds to this Stata code. What is the observation i in this data set? Interpret
the coefficient on cs born f oreign. What is the p-value on the cs born f oreign coeffi-
cient? Is the coefficient on cs born f oreign statistically significant at the one percent
level? Do you think this regression accurately represents the effect of cs born f oreign
on prob q1 q5? Why?
(d) Now add covariates for urban, gini99, top1 share, f rac middleclass, f rac traveltime lt15,
cs race bla, taxrate, cs labf orce, cs born f oreign. Interpret each coefficient that is sig-
nificant at the ten percent level. How do these additions affect the coefficient, standard
error, and p-value on cs born f oreign relative to the estimate found in part 1c? Is
this estimate of cs born f oreign or the estimate of cs born f oreign from 1c likely less
biased? Why?

2. Testing together

(a) Generate an interaction term between urban and gini99. Include this in the regression
you estimated in part 1d. What is the coefficient on the slope of gini99 for urban
commuting zones? At what level is this significant?
(b) Add the variables cs divorced and cs married to the regression in 2a. Suppose we want
to test whether all the marital status coefficients are jointly zero in this regression. What
is your null hypothesis? What is your alternative hypothesis? Conduct the appropriate
test and report the result. Can we reject the null? If so, at what significance level?