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Econometrics For ECO 2022 Tutorial 03 PDF

This document provides exercises related to econometrics concepts using various datasets. It includes: 1) Analyzing a dataset on 401k participation rates and employer matching rates to estimate a simple linear regression model and interpret the results. 2) Examining a dataset on CEO salaries and tenure to plot the relationship, estimate simple linear regression models, and interpret the coefficient and results. 3) Writing out a model for the elasticity between research & development (RD) spending and sales using a dataset on chemical firms, and estimating and interpreting the elasticity. 4) Using county-level data on murders and executions for 1996, students estimate a simple linear regression model and interpret the results, while acknowledging

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85 views2 pages

Econometrics For ECO 2022 Tutorial 03 PDF

This document provides exercises related to econometrics concepts using various datasets. It includes: 1) Analyzing a dataset on 401k participation rates and employer matching rates to estimate a simple linear regression model and interpret the results. 2) Examining a dataset on CEO salaries and tenure to plot the relationship, estimate simple linear regression models, and interpret the coefficient and results. 3) Writing out a model for the elasticity between research & development (RD) spending and sales using a dataset on chemical firms, and estimating and interpreting the elasticity. 4) Using county-level data on murders and executions for 1996, students estimate a simple linear regression model and interpret the results, while acknowledging

Uploaded by

Henk
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Tutorial 3

Econometrics for ECO

In-class exercises, 15 September 2022

1. The data in 401k.RData are a subset of data analyzed by Papke (1995) to study the
relationship between participation in a ’401(k)’ pension plan and the generosity of the
plan. The variable prate is the percentage of eligible workers with an active account; this
is the variable we would like to explain. The measure of generosity is the plan match
rate, mrate. This variable gives the average amount the firm contributes to each worker’s
plan for each $1 contribution by the worker. For example, if mrate = 0.50, then a $1
contribution by the worker is matched by a $0.50 contribution by the firm.
(a) Find the average participation rate and the average match rate in the sample of
plans.
(b) Now, estimate the simple regression equation
ˆ = βˆ0 + βˆ1 mrate
prate

and report the results along with the sample size and R-squared.
(c) Interpret the intercept in your equation. Interpret the coefficient on mrate.
(d) Find the predicted prate when mrate = 3.5. Is this a reasonable prediction? Explain
what is happening here.
(e) How much of the variation in prate is explained by mrate? Is this a lot in your
opinion?
2. The data set ceosal2.RData contains information on chief executive officers for U.S corpo-
rations. The variable salary is annual compensation, in thousands of dollars, and ceoten
is prior number of years as company CEO.
(a) Find the average salary and the average tenure in the sample.
(b) How many CEO’s are in their first year as CEO? (That is, ceoten=0.) What is the
longest tenure as CEO?
(c) Make a plot of the relationship between salary and ceoten.
(d) Estimate the simple regression model

salary = β0 + β1 ceoten + u

(i) How would you interpret β1 ?


(ii) What assumptions have you made in your interpretation?
(e) Now, estimate the simple regression model

ln salary = β0 + β1 ceoten + u

1
(i) Why might you take a natural log of salary?
∆salary
(ii) Interpret the results. (Hint: ∆ ln salary = )
salary
3. For the population of firms in the chemical industry, let rd denote annual expenditures
on research and development, and let sales denote annual sales (both are in millions of
dollars).
(a) Write down a model (not an estimated equation) that implies a constant elasticity
between rd and sales. Which parameter is the elasticity?
(b) Now, estimate the model using the data in rdchem.RData. Write out the estimated
equation in the usual form. What is the estimated elasticity of rd with respect to
sales? Explain in words what this elasticity means
EXTRA EXERCISE:
4. Use the data in countymurders.RData to answer the questions. Use only the data for
1996. The variable murders is the number of murders reported in the county. The
variable execs is the number of executions that took place of people sentenced to death
in the given county. Most states in the United States have the death penalty, but several
do not.
(a) How many counties had zero murders in 1996? How many counties had at least one
execution? What is the largest number of executions?
(b) Estimate the equation
murders = β0 + β1 execs + u
by OLS and report the results in the usual way, including sample size and R-squared.
(c) Interpret the slope coefficient reported in part (b). Does the estimated equation
suggest a deterrent effect of capital punishment?
(d) What is the smallest number of murders that can be predicted by the equation?
What is the residual for a county with zero executions and zero murders?
(e) Explain why a simple regression analysis is not well suited for determining whether
capital punishment has a deterrent effect on murders.

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