problem set #2.docx - Group 3: Soojee Lee Hans Kasim ...

Group 3:
Soojee Lee, Hans Kasim, Monica Zhao, Mariela Centeno
Problem Set# 2
1. “Bridging the Savings Gap”: Interaction Terms in Regressions
a.
i. Information (
X
1 i
) and Education (
X
2 i
) are the independent variables.
Whether or not an individual has an account (
y
i
) is the dependent variable.
ii. Coefficients:
β
1
= 0.123
β
2
=− 0.133
β
3
=− 0.102
iii. i indicates the household in which the data is collected from. For example, if i =1,
then it is household number 1. If i =2, then it is household number 2.
b.
y
i
is a dummy variable. If
y
i
= 0
, they have no account. If it is
y
i
= 1
, they have
an account.
c.
X
1
represents information. If
X
1
= 0
, they are not given information. If
X
1
= 1
,
they are given information.
X
2
represents the non-educated. If
X
2
= 0
, they are
educated. If
X
2
= 1
, they are the non-educated.
d.
i. Given
ii.
y
i
= β
0
❑
+ β
1
+ ε
i
❑❑
iii.
y
i
= β
0
❑
+ β
2
+ ε
i
❑❑
iv.
y
i
= β
0
❑
+ β
1
+ β
2
+ β
3
+ ε
i
❑❑
e.
i.
β
1
❑
ii.
β
1
= 0.123
❑
iii. Holding all else constant, there is a 12.3 percentage point increase in the
probability of adopting a formal savings account when given the information
treatment.