Exercise 4

Exercise 4 - ECN 425 EXERCISE 4 DR. AHN 1. (15 pts.; 3 pts...

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1 ECN 425 EXERCISE 4 DR. AHN 1. (15 pts.; 3 pts on each.) Choose the one alternative that best completes the statement or answers the question. (1) 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 1980-2000 (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. (2) In the binary dependent variable model, a predicted value of 0.6 means that a. the most likely value the dependent variable will take on is 60 percent. b. given the values for the explanatory variables, there is a 60 percent probability that the dependent variable will equal one. c. the model makes little sense, since the dependent variable can only be 0 or 1. d. given the values for the explanatory variables, there is a 40 percent probability that the dependent variable will equal one. (3) The rule-of-thumb for checking for weak instruments is as follows: for the case of a single endogenous regressor, a. a first stage F must be statistically significant to indicate a strong instrument. b. a first stage F > 1.96 indicates that the instruments are weak. c. the t -statistic on each of the instruments must exceed at least 1.64. d. a first stage F < 10 indicates that the instruments are weak. (4) In the fixed effects regression model, using ( n – 1) binary variables for the entities, the coefficient of the binary variable a. indicates the level of the fixed effect of the i th entity. b. will be either 0 or 1. c. indicates the difference in fixed effects between the i th and the first entity. d. indicates the response in the dependent variable to a percentage change in the binary variable. (5) The logit model can be estimated and yields consistent estimates if you are using a. OLS estimation. b. maximum likelihood estimation. c. differences in means between those individuals with a dependent variable equal to one and those with a dependent variable equal to zero. d. the linear probability model.
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2 2. (35 pts. 5 pts. each.) Consider the following statements independently. State clearly whether you agree or do not agree. If you do not agree, explain why. No credit will be given if you just say “Do not agree” . Use 5% of significance level, whenever you need.
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Exercise 4 - ECN 425 EXERCISE 4 DR. AHN 1. (15 pts.; 3 pts...

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