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1. (23 points) Consider the following binary variable version of the fixed efiects model. Consider
the example of Fatality Rate (Ygt) and Beer Taxes (Xa) with a panel data of 48 states and
7 years. We use binary variables to denote the individual states. The regressor DTXz' is a
binary variable for Texas that equals 1 when 2'. = TX and 0 otherwise. The binary variable
for California Dam is omitted. Ya = 160 + 15an ‘i‘ 182DTX3‘ + fiSDMAi + + 548DNH + “a;
for 2' = 1,2,...,48 and t = 1982,1983,...,1988. (You do not need to explain your reasoning for ( a)-( f ) ) (a) The slope of TX in 1983 is
(b) The intercept of TX in 1983 is
(c) The slope of MA in 1983 is
(d) The intercept of MA in 1983 is
(e) The slope of CA in 1983 is
(f) The intercept of CA in 1983 is (g) (5 points) Why don’t we include Dam in the above regression?

Top Answer

Using this regression equation, we would get... View the full answer

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And-al slope of TX = BI
And- 6.) Intercept of TX = Bot BZ
If we write Dixi= 1, & there is no time dummy,
we have
Yit = ( Bot B2) + BIXit
- : The intercept should be Bot B2.
Similar reasoning...

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