MidtermS_06 v2

# MidtermS_06 v2 - Econ 166 Spring 2006 Professor J.G Altonji...

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Econ 166 Spring 2006 Professor J.G. Altonji MIDTERM EXAM (100 points) Time: 75 minutes. This exam is closed book. You may use an an (8x11) handwritten sheet of notes (1-sided , no use of a photocopy machine/scanner to reduce) Show your work : You do not have to actually carry out complicated multiplication or division . Just show the expressions. Statistical Tables provided at the end of the paper. Unless otherwise stated statistical tests are to be performed at the 5% significance level. 1. (20 points) In a study of the effects of bank size and management quality on number of labor hours (Y i ) required by the Federal Deposit Insurance Corporation (FDIC) to examine the bank, Miller used data on 28 banks for the year 1993 to estimate the following regression model: lnY i = β 0 + β 1 lnX i + β 2 D i + β 3 D i (lnX i ) + u i . He obtained the following OLS estimate (standard errors in parentheses): lnY i = 2.41 + 0.35 lnX i - 0.09 D i - 0.10 D i (lnX i ) R 2 = 0.667 (0.05) (0.072) (0.02) where X i is total bank assets and D i takes the value 1 if the bank gets a "good" management rating and D i = 0 otherwise (i.e., the bank gets some lower rating). a.

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MidtermS_06 v2 - Econ 166 Spring 2006 Professor J.G Altonji...

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