Department of Economics
W3412
Columbia University
Spring 2010
SOLUTIONS TO
Problem Set 6
Introduction to Econometrics
Prof. Marcelo J. Moreira and Seyhan E Arkonac, PhD
for all sections
Spring 2010
1)
Create a new binary variable higdppc, which equals one if gdppc is greater than or equal to
the median in the data set, and which equals zero otherwise; also create the interaction
variables hi_lackf =
higdppc
lackpf and hi_lackf =
higdppc
lackpf
2
.
Estimate the
regressions in Table 1 and fill in the empty entries.
You may write in the entries by hand or
type them using the .doc electronic version of the table on the course Web site.
Note:
for all
calculations, only use the countries that have nonzero values of ftmpop and nonmissing
values of gdppc.
See the attached table and the .do file that produced the results.
2)
Regression (6) produces two regression lines, one for logdppc = 0 and one for logdppc = 1.
Produce a scatterplot of lnftmpop vs. lackpf, showing the two regression lines.
This can be
done either by producing two scatterplots, one for logdppc = 0 and one for logdppc = 1, or
by combining the two scatterplots into a single graph.
Use regression (6) to write out the
estimated regression lines for the two groups (in slopeintercept form).
Log terrorist fatalities
Terrorsim and Political Freedoms
Lack of political freedom
lnftmpop_lo
lnftmpop_hi
plnft_lo
plnft_hi
0
2
4
6
8
6
4
2
0
2
This preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentRegression line for low GDPPC group:
ln
ftmpop
= .72 – .248
lackpf
Regression line for high GDPPC group:
ln
ftmpop
= 3.56 + .397
lackpf
3)
Use the results in Table 1 to answer the following questions.
a)
Is the difference between the two slopes plotted in the scatterplot of Question 2
statistically significantly different from zero at the 5% significance level? Explain.
Yes.
The hypothesis that the slopes are the same translates into the coefficient on the interaction
term in regression (6) being zero, and the
t
statistic on that term is
t
= 6.45/2.38 = 2.71, which
exceeds 1.96.
b)
In a sentence or two, interpret the signs of the two slope coefficients in regression (6) and
the scatterplot in Question 2; that is, explain in everyday terms the findings shown in that
scatterplot.
For countries with GDP per capita below the median, fewer political freedoms (i.e. greater values
of
lackpf
) are associated with fewer terrorist fatalities.
In contrast, in countries with GDP per
capita above the median, fewer political freedoms are associated with more fatalities.
As pointed
out in the response to (a), this difference in slopes is statistically significant.
c)
Using regression (7), test the hypothesis that the coefficients on higdppc
lackpf and
higdppc
lackpf
2
are zero, against the hypothesis that one or the other (or both) is
nonzero.
State in words what the hypothesis is that you are testing.
This is the end of the preview.
Sign up
to
access the rest of the document.
 Fall '11
 SeyhanArkonac
 Statistics, Econometrics, Regression Analysis, Statistical hypothesis testing, per capita, political freedoms

Click to edit the document details