ECON 2220 A Winter 2024
Simon Power
A ssignment 2: Due March 15
PLEASE BE SURE TO READ THE DOCUMENT ENTITLED“GENERAL ASSIGNMENT
GUIDELINES” BEFORE Y OU BEGIN THIS ASSIGNMENT. ALL REFERENCES ARE TO
THE 7th EDITION OF STUDENMUND. UNLESS SPECIFIED OTHERWISE, USE A 5%
SIGNIFICA NCE LEV EL FOR ALL TESTS. ASSIGNMENTS SHOULD BE SUBMITTED
THROUGH BRIGHTSPACE EITHER ON OR BEFORE THE DUE DATE.
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IF IN DOUBT, PROVIDE MORE DETAIL IN Y OUR ANSWERS, RATHER THAN LESS.
NOTE: If a statistical table does not give an entry for the appropriate number(s) of degrees of
freedom, then use the closest number(s) of degrees of freedom available.
1. Consider Question 7 of Chapter 3 (pp. 87-89), together with the new A2Q1.dta dataset.
A nswer the following questions:
i) Obtain basic summary statistics for the variables PRICE, NEW, SCRATCH, and BIDRS using
the STATA “summarize” command, and then copy and paste the output into your assignment.
ii) Estimate the model using STATA, and then copy and paste the output into your assignment.
iii) Report your regression results in the standard format of equation (3.2) on p. 72. (Use two
deci mal places for the estimated coefficients, the standard errors, and the t-statistics.)
iv) Carefully explain the real-world meaning of the three estimated slope coefficients.
v) What signs would you have expected for each of the estimated slope coefficients? Carefully
explain your reasoning in each case.
vi) Based on your answer to part v), use t-tests to test these expectations about the signs of the
estimated slope coefficients. Be sure to write down the null and alternative hypotheses in each
case, and to explain whether you should reject or not reject the null hypothesis in each case.
vii) Test the overall significance of the regression using the step-by-step procedure outlined in
the example on p.145. Be sure to write down the appropriate null and alternative hypotheses, and
to explain whether you should reject or not reject the null hypothesis.
viii) Repeat part vii), but this time using the (more) general F-test formula given in equation
(5.10). Be sure to write down the appropriate null and alternative hypotheses, and to explain
whether you should reject or not reject the null hypothesis.
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ix) Using the standard formula in equation (5.9), construct 90% 2-sided confidence intervals for
each of the estimated slope coefficients. Be sure to show your working, step-by-step.
x) Using an appropriate STATA command(s), check your answers to part ix). Copy and paste the
relevant STATA output into your assignment.
xi) Re- estimate the model using STATA, but this time omit the BIDRS variable, and then copy
and paste the output into your assignment.
xii) Report the regression results from part xi) in the standard format of equation (3.2) on p. 72.
(Use two decimal places for the estimated coefficients, the standard errors, and the t-statistics.)
xiii) Using the discussion of four important specification criteria on p. 166-167, compare the
ori gi nal model with the more parsimonious model which excludes BIDRS. Which model do you
think is better? Carefully use the four specification criteria to make your decision, being sure to
state which criteria support your decision and why.
2. Consider the US dataset A2Q2.dta, where the variables are defined as follows:
WAGES =current hourly wages in $
SCHOOL =years of schooling
EXPER =years of out- of - school work experience
ETHBLA CK =1 if African-American, 0 otherwise
ETHHISP =1 if Hispanic, 0 otherwise
Note that there are three ethnic groups in total, namely, African-American, Hispanic, and Other.
Respondents are associated with one and only one of these three groups.
i) Obtain basic summary statistics for the variables in the dataset using the STATA summari z e
command, and then copy and paste the output into your assignment.
ii) Estimate the following wages model and then copy and paste the output into your assignment.
iii) Carefully interpret the real-world meaning of the five parameter estimates.
iv) Are all of the parameter estimates individually statistically significant? Explain.
v) Use an appropriate F-test to test whether ethnicity has an overall impact on current hourly
wages and therefore whether the two ethnicity dummy variables should be included in the model.
Be sure to follow the detailed steps outlined on pp. 142-144, including the provision of a clear
statement of the relevant null and alternative hypotheses, the use of the general F- stati sti c
