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Problem Set 4 Intermediate Econometrics II Economics 2223B

This document provides instructions for Problem Set 4 in an Intermediate Econometrics course. Students are asked to return their solutions by March 12th. The problem set involves multiple regression analysis and interpreting coefficients from regressions using data on students' exam scores, hours spent studying, working experience, wages, schooling and age. Students must demonstrate properties of the error term in multiple regression, interpret coefficients from two regressions on studying hours, and perform various statistical tests on regressions using work experience and schooling as predictors of wages.

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69 views1 page

Problem Set 4 Intermediate Econometrics II Economics 2223B

This document provides instructions for Problem Set 4 in an Intermediate Econometrics course. Students are asked to return their solutions by March 12th. The problem set involves multiple regression analysis and interpreting coefficients from regressions using data on students' exam scores, hours spent studying, working experience, wages, schooling and age. Students must demonstrate properties of the error term in multiple regression, interpret coefficients from two regressions on studying hours, and perform various statistical tests on regressions using work experience and schooling as predictors of wages.

Uploaded by

Bin Wang
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Problem Set 4

Intermediate Econometrics II
ECONOMICS 2223B
Prof. Julio Elias

You have to return your solutions to the problem set on Thursday, March 12 at the beginning of the
class.

Multiple Regression Analysis


During the first part of the course we discussed the simple regression model, where it was assumed
that the dependent variable in the model was related to only one explanatory variable. In general,
there will be several explanatory variables and we wish to quantify the impact of each, controlling for
the effects of others.
1. Demonstrate that 𝑒̅ = 0 in multiple regression analysis.
2. Two researchers are investigating the effects of time spent studying on the examination
marks earned by students on a certain course. For a sample of 100 students, they have the
examination mark, M, total hours spent studying, H, hours on primary study, P, and hours
spent on revision, R. By definition, H = P + R. Researcher A decides to regress M on P and
R and fits the following regression:
̂ = 45.6 + 0.15 𝑃 + 0.21 𝑅
𝑀
Researcher B decides to regress M on H and P, with regression output
̂ = 45.6 + 0.21 𝐻 – 0.06 𝑃
𝑀
Give an interpretation of the coefficients of both regressions.
3. Work experience is generally found to be an important determinant of earnings. If a direct
measure is lacking in a data set, it is standard practice to use potential work experience,
PWE, defined by PWEi = AGEi – Si – 5 as a proxy for the work experience of individual i.
This is the maximum number of years since the completion of full-time education, assuming
that an individual enters first grade at the age of six. Using the LFS data set, regress Hourly
Wages on Years of Schooling and PWE and interpret the regression results:
a. Perform a t test on the coefficients on Schooling and Potential Work Experience,
and state your conclusions.
b. Calculate the F statistic using the explained sum of squares and the residual sum of
squares in the regression output, verify that it matches the F statistic in the output,
and perform a test of the explanatory power of the equation as a whole. Also
calculate the F statistic using R2 and verify that it is the same.
c. Run the regression a second time adding AGE as well. Comment on the regression
results.

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