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Assignment Projects

 

1. This is your first assignment project.

(I have taken idea of this exercise from Bruce Hansen's text on Econometrics.)

The data file card_data.xls is taken from David Card “Using Geographic Variation in College Proximity to Estimate the Return to Schooling” in Aspects of Labour Market Behavior (1995). There are 2215 observations with 29 variables listed in card.xls. We want to test if returns to schooling is the same for whites and blacks. To this end, estimate the wage equation

log(Wage) = β₀ + (Educ)β₁ + (Exper)β₂ + (Exper²)β₃

+(South)β₄ + (Black)β₅ +(Black)*(Educ)β₆ + e

where (Educ) = Eduation in years, Exper = Experience in (years), and (South) and (Black) are regional and racial dummy variables.

Estimate the model by OLS. Report estimates and standard errors.

Now treat Education as endogenous, and the remaining variables as exogenous. Estimate the model by 2SLS, using the four instruments near4 (a dummy indicating that the observation lives near a 4-year college), near2 (a dummy indicating that the observation lives near a 2-year college), fatheduc (the education, in years, of the father) and motheduc (the education, in years, of the mother). Report estimates and standard errors.

Report your conclusion about returns to schooling for blacks and whites. Discuss the appropriateness of the choise of instruments.

Here is the description of the data.

Some further explanation of the data:

Nota Bene: variable 28 is strangely coded. It is not a simple dummy for “married”. I don't know how to intyerpret it. (It therefore doesn't enter the equation.)

NLS means “National Longitudinal Surveys”. These are data that the US Department of Labor, Bureau of Labor Statistics, collects. I don't know what “weight” means.

SMSA means “Standard Metropolitan Statistical Areas” (a standard Census Bureau designation of the region around a city in the United States)

2. This is your second assignment project.
You should write this as a little report on the experiment.

The table below is from an experiment where the humidity of paper, produced by a paper machine, was measured. Two measurment were made for each of two different levels of speed and three different mixtures if ingrediences.

a) construct an ANOVA table with sources speed, ingrediences, interactions and error (i.e, four sources.)

b) See if it is reasonable to reduce the model to have zero interactions. Motivate your choice!

c) See if there is any more or other reduction of the model that is motivated.

d) Write the ANOVA table for the final model.

e) Write down the final model with your estimated coefficients.

f) According to your final model, which combination of speed and ingrediences gives the lowest humidity?

	ingredience 1		ingredience 2		ingredience 3
speed 1	7.2	7.2	7.8	7.2	8.4	7.8
speed 2	6.4	6.8	7.2	7.4	7.8	7.6