Fall 2006
Homework 2
Due date: September 24th
Question 1
The data set WAGE1.dta, contains a sample of N=526 individuals drawn from
the population of people in the workforce in 1976 (so wages are in dollars of
1976). Report your answers by means of a STATA log ﬁle. Here is the list of
commands you will need in order to solve the homework.
regress, plot, tab, count, egen, generate, summarize, correlate.
Suppose the true model is
wage
=
β
o
+
β
1
educ
+
u
(1)
a. Using STATA, obtain the sample regression function.
d
wage
=
ˆ
β
o
+
ˆ
β
1
educ
b. Is it true that in order to get an unbiased estimator of the
ceteris paribus
eﬀect of education on wages, we must assume that
E
[
u

educ
] = 0?
Show that this implies that
E
[
wage

educ
] =
β
o
+
β
1
educ
.
c. If we also make the homoskedasticity assumption, then
V ar
[
u

educ
] =
σ
2
does not depend on the level of education. Argue that this is the same
as assuming
V ar
[
wage

educ
] =
σ
2
.
1
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 Fall '06
 LUCARELLI
 Regression Analysis, log file

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