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Economics 120C
Name:
_____________________________
Professor Yongil Jeon
Spring 2010
Student ID#: ________________________
Homework #2, Spring 2010
(A Part of Exams #1 and #2, Summer 2009  Session 2)
Answer all questions on separate paper. This problem set should be handed in to your TA at the
beginning of your discussion class on Friday, May 21, 2010.
Problem sets may not be handed in
once solutions have been distributed.
Please write down your name and PID clearly. Good luck!
1.
(24 points) Multiple Choices (4 points each)
a)
The difference between an unbalanced and a balanced panel is that
a.
you cannot have both fixed time effects and fixed entity effects regressions.
b.
in an unbalanced panel, observations are missing for one entity in, at least, one
time period.
c.
the impact of different regressors are roughly the same for balanced but not for
unbalanced panels.
d.
in the former you may not include drivers who have been drinking in the fatality
rate/beer tax study.
Answer
:
b)
In the Fixed Effects regression model, using (
n
– 1) binary variables for the entities, the
coefficient of the binary variable indicates
a.
the level of the fixed effect of the
i
th
entity.
b.
will be either 0 or 1.
c.
the difference in fixed effects between the
i
th
and the first entity.
d.
the response in the dependent variable to a percentage change in the binary
variable.
Answer
:
c)
Time Fixed Effects regression are useful in dealing with omitted variables
a.
even if you only have a crosssection of data available.
b.
if these omitted variables are constant across entities but vary over time.
c.
when there are more than 100 observations.
d.
if these omitted variables are constant across entities but not over time.
Answer
:
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HW#2, ECON 120C, Spring 2010
d)
Consider a panel regression of unemployment rates for the G7 countries (United States,
Canada, France, Germany, Italy, United Kingdom, Japan) on a set of explanatory
variables for the time period 19802000 (annual data). If you included entity and time
fixed effects, you would need to specify the following number of binary variables:
a.
21.
b.
6.
c.
28.
d.
26.
Answer
:
e)
In the context of a controlled experiment, consider the simple linear regression
formulation
0
1
i
i
i
Y
X
u
β
=
+
+
. Let the
Y
i
be the outcome,
X
i
the treatment level when
the treatment is binary, and
u
i
contain all the additional determinants of the outcome. Then
calling
1
a differences estimator
a.
makes sense since it is the difference between the sample average outcome of the
treatment group and the sample average outcome of the control group.
b.
and
&
0
the level estimator is standard terminology in randomized controlled
experiments.
c.
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 Spring '10
 Ohly
 Economics

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