1
Department of Economics
Economics 120B
Winter 2006
Prof. Berman
Problem Set #2
Due Tuesday, February 7
Please hand in answers on this sheet and staple the output (.log) file to it.
1. Confidence Intervals:
The file cps84.dta contains information about wages and education for 13,743 observations
from the Current Population Survey of October 1984. It is available at http://econ.ucsd.edu/~elib/120b/
In those data a linear regression describes the relationship between log wages (y) and years of education (x) where
0
1
the intercept of the regression line is
$
and the slope is
$
.
0
1
0
1
y =
$
+
$
x +
,
,
with
$
=0.985 ,
$
= 0.070 ,
Cov(x,
,
)=0.
Treat these data as a population.
Generate a sample of 40 observations from the population as in the Stata log file attached below. We are
0
1
interested in the sampling variance of the least squares estimates of
$
and
$
.
(In Stata, generating a random sample using the "bsample" command requires setting a "seed" value. Choose the
seed to be some arbitrary large positive, odd number.
Don
*
t use the same number as any of your classmates.
Identical seed values will be interpreted in the worst possible way and marks will be deducted.)
0
1
a) Calculate OLS estimates of
$
and
$
using your 40 observation sample. Report your sample estimates here.
b) Now pretend that you don't know anything about the population except for the information in the sample. Test the
1
null hypothesis that
$
= 0.070 using the data you have in your40 observation sample, using a twotailed test and
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 Spring '08
 Jeon
 Economics, Econometrics, Regression Analysis, Coef, Obs Mean Std

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