ECON301_Handout_12_1213_02

# Solution a 1 st parametrization y t 1037 d t1 375 d

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Solution: a) 1 st Parametrization: Y t = 103.7 D t1 +3.75 D t1 X t1 +10.51 D t1 X t2 +95.6 D t2 +2.90 D t2 X t1 +13.30 D t2 X t2 B 01 B 11 B 21 B 02 B 12 B 22 2 nd Parametrization: (p-1) Dummy variable (p number of subsamples) D t1 +D t2 = 1 D t1 = 1 - D t2 Y t = 103.7(1 - D t2 )+3.75(1 -D t2 )X t1 +10.51(1-D t2 )X t2 +95.6D t2 +2.90D t2 X t1 +13.30D t2 X t2 Y t = 103.7 - 103.7 D t2 +3.75 X t1 - 3.75 D t2 X t1 +10.51 X t2 - 10.51 D t2 X t2 +95.6 D t2 +2.90D t2 X t1 +13.30D t2 X t2

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ECON 301 - Introduction to Econometrics I May 2013 METU - Department of Economics Instructor: Dr. Ozan ERUYGUR e-mail: Lecture Notes 7 Y t = 103.7+3.75 X t1 +10.51 X t2 - 8.1 D t2 - 0.85 D t2 X t1 +2.79 D t2 X t2 2 nd Param. If we illustrate the second parametrization, we can write as follows: Y t = B 01 +B 11 X t1+ B 21 X t2 +(B 02 - B 01 ) D t2 +(B 12 - B 11 )D t2 X t1 +(B 22 - B 21 )D t2 X t2 +u t 1.subsample is base 02 12 22 (D t1 = 1 - D t2 ) Intercept Slope Slope dummy dummy dummy b) First parametrization Y t = B 01 +B 11 X t1 +B 21 X t2 +u t 1st Subsample Y t = B 02 +B 12 X t1 +B 22 X t2 +u t 2nd Subsample Y t = B 01 D t1 +B 11 D t1 X t1 +B 21 D t1 X t2 +B

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