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Problem Set 5

Problem Set 5 - Problem Set 5 Economics 103 Due Thursday...

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1 Problem Set 5 Economics 103 Due: Thursday, March 12, 2009 Question 1 True/False/Explain: 1) The linear probability model is the application of the multiple regression model with a continuous left-hand side variable and a binary variable as at least one of the regressors. 2) The linear probability model has predicted values that lie between 0 and 1. 3) The probit model is the same as the logit model. 4) In the expression Pr(Y=1)= ( β 0 + β 1 X) from a probit model, 1 cannot be negative since probabilities have to lie between 0 and 1. 5) In the probit model 12 0 1 1 2 Pr( 1| , ,..., ) ( ... ) kx k k YX XX X X X   , the slopes tell you the effect of a unit increase in X on the probability of Y . 6) In the expression Pr( deny = 1| P/I Ratio , black ) = (–2.26 + 2.74 P/I ratio + 0.71 black ), the effect of increasing the P/I ratio from 0.3 to 0.4 for a white person is 2.74 percentage points. 7) In the binary dependent variable model, a predicted value of 0.6 means that the most likely value the dependent variable will take on is 60 percent. 8) In the linear probability model, the interpretation of the slope coefficient is the change in probability that Y =1 associated with a unit change in X , holding other regressors constant. 9) The distinction between endogenous and exogenous variables is that exogenous variables are determined inside the model and endogenous variables are determined outside the model.
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2 Question 2 1. Describe why you would need to use an instrumental variables estimation strategy? 2. What makes an instrument valid? 3. What is the intuition behind IV estimation? Question 3 Suppose that you are interested in estimating the effect of gender on the probability of college enrollment, holding constant the person’s family income. To estimate this effect, you estimated a Logit regression with both household income (INCOME), measured in thousands of dollars, and an indicator for whether the applicant was female (FEMALE): ) 37 . 1 35 . 0 23 . 4 ( ) , | 1 Pr( FEMALE INCOME F FEMALE INCOME enroll 1. A female student applicant has a household income of 15. What is the probability that she
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Problem Set 5 - Problem Set 5 Economics 103 Due Thursday...

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