ecm2ie-sol3r_2016.rtf - Introductory Econometrics Brief...

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Introductory Econometrics Brief Solutions to Problem Set No. 3 Problem One (to be done before the lab session) Do Problem 5.9 on page 203 of the textbook “Principles of Econometrics”. You can exclude (d). Solutions The marginal effect is β 3 +2 β 4 EXPER β 2 , β 3 >0 (wages should increase with education and experience) and β 4 < 0 (diminishing and ultimately negative returns to experience (over the hill?)) Returns will start to decline at the experience is − β 3 /(2β 4 ) (where the marginal effect is zero). (i) 2.2774 (ii) (iii) (iv) W ages will decline after approximately 34 years of experience. Problem Two (to be done during the lab session) Review sections 5.1 to 5.3 and 5.5 of Chapter 5 of “Using Eviews for Principles of Econometrics, Fourth Edition”. It would be a good idea to work through this at home. Download the files cocaine.wf1 and cocaine.def and complete exercise 5.12 on pages 204 and 205 of the textbook. Solutions If dealers offer quantity discounts we expect the coefficient on quantity to be negative. The coefficient on quality should be positive. We have no specific
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