Posted: November 2nd, 2015

Quantitative Economic Analysis Economics 140 Problem

Department of Economics M. Dowell California State University, Sacramento Fall 2015 Quantitative Economic Analysis Economics 140 Problem Set #5 Revised Section 2 Due in hard copy at beginning of lecture on Monday, 11/2/15 Section 3 Due in hard copy at beginning of lecture on Tuesday, 11/3/15 Please follow all the instructions, or your problem set will receive no points. Answer all questions neatly and in order on separate sheets of paper. (You do not need a separate sheet for each question, but must present your answers in order.) All answers must be typed. No hand written work will be accepted. Place your name and “Econ 140-02 PS 1” or “Econ 140-03 PS1,” whichever is appropriate for your section number in the upper right hand corner of each page and number all pages. Staple all pages together. Note that that neatness and presentation is important. Prepare this assignment as though it were a resume and job application. If you submit something that looks like scratch paper or rubbish, I will treat it as such. Problem sets are due at the beginning of lecture and will not be accepted late. While I encourage you to form study groups and work together, your submitted work must be your own. Problem sets that are identical (in whole or in substantial part) to another student’s problem set will receive a zero. Problem sets should NOT be left in my Economics Department mailbox or under my office door. I am not responsible for problem sets turned in any way other than to me at the beginning of lecture. No electronic submissions will be accepted. You will perform the steps below in Eviews, using the data set you constructed for Problem Set 4. (I have posted this data to the course web page. If you were unable to match the summary statistics, you should go through your data in detail and try to figure out why they don’t match.) You should create and save a work file as we will build on the steps below in the next couple of problem sets. Cut and paste key output into a Word document and also include any explanations called for in your final submission. Do the following: a. Picking your independent variable first, create a scatterplot of WAGE_RATE and YEARS_EDUCATION and of WAGE_RATE and TENURE. What patterns do you observe? Include the first scatterplot in your final submission. b. Repeat part a, but using WAGES instead of WAGE_RATE c. Create a correlation matrix of all the variables in your data set including the dummy variables. What are the correlation coefficients between the variables you plotted in part b? Do you see any indications of multi-collinearity in the correlation matrix? Explain. d. Run a regression with WAGE RATE as the dependent variable and AGE, FEMALE, WHITE, TENURE, YEARS OF COMPLETED EDUCATION, MARRIED, BACHELORS and GRADUATE as explanatory variables. Include Eviews output and also report your results in equation form and briefly discuss. What key results do you see? Interpret these results. e. Suppose you think the returns to years of education differ depending on gender. Modify your model to account for this. Explain what you have done and why. Report your results in equation form and comment.