Assignment 02 (Target CLO 1, 2 & 3) Fundamentals of Econometrics (ECO-215)BBA 2K22 (Section A &B) BST&H 2k22 All Questions are mandatory to attempt. Deadline: 19th March 2023 Type all questions in a Word document, upload on LMS, and submit the printed copy to the office For typesetting, please type in a formal way; learn how to write mathematical expressions. Wrong expression/typesetting will result in the deduction of marks. Precise contextual should be preferred unless specified. Do NOT use the plastic file folders, which will also result in the deduction of marks. Use the appropriate commands on STATA to find the desired outputs, you may import output results screenshots from STATA. Answer the following questions. TASK 1 The median starting salary for new law school graduates is determined by log(π πππππ¦) = π½0 + π½1 πΏππ΄π + π½2 πΊππ΄ + π½3 log(ππππ£ππ) + π½4 log(πππ π‘) + π½5 ππππ + π’ where LSAT is the median LSAT score for the graduating class, GPA is the median college GPA for the class, libvol is the number of volumes in the law school library, cost is the annual cost of attending law school, and rank is a law school ranking (with rank = 1 being the best) [i]. Explain why we expect π½5 ≤ 0. [ii]. What signs do you expect for the other slop parameters? Justify your answers [iii]. Using the data LAWSCH85, estimate the equation [iv]. What is the predicted ceteris paribus difference in salary for schools with a median GPA different by one point? (Report your answer as a percentage.) [v]. Interpret the coefficient on the variable log(ππππ£ππ) [vi]. Would you say it is better to attend a higher ranked law school? How much is a difference in ranking of 20 worth in terms of predicted starting salary? TASK 2 In a study relating college grade point average to time spent in various activities, you distribute a survey to several students. The students are asked how many hours they spend each week in four activities: studying, sleeping, working, and leisure. Any activity is put into one of the four categories, so that for each student, the sum of hours in the four activities must be 168. [i]. In this model, πΊππ΄ = π½0 + π½1 π π‘π’ππ¦ + π½2 π ππππ + π½3 π€πππ + π½4 ππππ’ππ + π’ Does it make sense to keep sleep, work, and leisure fixed while changing your study schedule? [ii]. Explain why this model violates the assumption of multicollinearity. Give your supported answer. [iii]. How could you reformulate the model so that its parameters have a useful interpretation and it satisfies Assumption MLR-4? TASK 3 Use the data in ATTEND for this exercise. [i]. Obtain the minimum, maximum, and average values for the variables atndrte, priGPA, and ACT. [ii]. Estimate the model ππ‘ππππ‘π = π½0 + π½1 ππππΊππ΄ + π½2 π΄πΆπ + π’ write the results in equation form. Interpret the intercept. Does it have a useful meaning? [iii]. Discuss the estimated slope coefficients. Are there any surprises? [iv]. What is the predicted atndrte if priGPA = 3.65 and ACT = 20? What do you make of this result? Are there any students in the sample with these values of the explanatory variables? [v]. If Student A has priGPA = 3.1 and ACT = 21 and Student B has priGPA = 2.1 and ACT = 26, what is the predicted difference in their attendance rates? TASK 4 Consider the estimated equation below , which can be used to study the effects of skipping class on college GPA: [i]. Using the standard normal approximation, find the 95% confidence interval for π½βπ πΊππ΄ ? [ii]. Can you reject the hypothesis π»0 : π½βπ πΊππ΄ = 0.4 against the two-sided alternative at 5% level? [iii]. Can you reject the hypothesis π»0 : π½βπ πΊππ΄ = 1 against the two-sided alternative at 5% level? TASK 5 Use the data in WAGE2 for this exercise [i]. Consider the standard wage equation log(π€πππ) = π½0 + π½1 πππ’π + π½2 ππ₯πππ + π½3 π‘πππ’ππ + π’ State the null hypothesis that another year of general workforce experience has the same effect on log(wage) as another year of tenure with the current employer. [ii]. Test the null hypothesis in part (i) against a two-sided alternative, at the 5% significance level, by constructing a 95% confidence interval. What do you conclude?
