hw #3 solutions.pdf

# Arguably the island is not very representative of

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. * Arguably, the island is not very representative of larger economies, which . * are an end destination for trade rather than a stopping point. . * Thus, Malta should be excluded from the analysis. . . log close name: <unnamed> log: [your directory]/hw3_log41.log log type: text closed on: 1 Feb 2018, 16:52:27 -------------------------------------------------------------------------------- 15

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Figure 2: Exercise 4.1(b) Figure 3: Exercise 4.1(e) 16
Question 8: Stock and Watson, E4.3 cd [your directory with data] log using hw3_log43.log, text replace -------------------------------------------------------------------------------- name: <unnamed> log: [your directory]/hw3_log43.log log type: text opened on: 1 Feb 2018, 16:52:27 . use CollegeDistance, clear . . ***part (a)*** . regress ed dist, robust Linear regression Number of obs = 3,796 F(1, 3794) = 29.83 Prob > F = 0.0000 R-squared = 0.0074 Root MSE = 1.8074 ------------------------------------------------------------------------------ | Robust ed | Coef. Std. Err. t P>|t| [95% Conf. Interval] -------------+---------------------------------------------------------------- dist | -.0733727 .0134334 -5.46 0.000 -.0997101 -.0470353 _cons | 13.95586 .0378112 369.09 0.000 13.88172 14.02999 ------------------------------------------------------------------------------ . * The estimated intercept is 13.95586 . * The estimated slope is -.0733727 . * A 10 mile (i.e., 1 unit) increase in the distance to the nearest college . * is associated with 0.0733727 less years completed of education. . . ***part (b)*** . * If Bob lives 20 miles away the predicted years of education is . display 13.95586-.0733727*2 13.809115 . * If he lives 10 miles away the predicted years of education is . display 13.95586-.0733727*1 13.882487 17

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. . ***part (c)*** . * No, the R-squared is low at 0.0074 . . ***part (d)*** . * The root mean squared error in the top right . * of the regression output is 1.8074. . * This is essentially the same as the SER, just a matter of whether . * you divide by n or n-2 in the formula. . * To be entirely precise, using the formulae from the slides, . * the SER is given by . display sqrt(3796/3794)*1.8074 1.8078763 . * The SER is measured in the units of Y, that is, years of education. . * That is, the average ‘‘mistake’’ of the . * OLS line is about 1.81 years. . . log close name: <unnamed> log: [your directory]/hw3_log43.log log type: text closed on: 1 Feb 2018, 16:52:27 -------------------------------------------------------------------------------- 18
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