Homework 6

Nathaniel Higgins nhiggins@jhu.edu, nhiggins@ers.usda.gov

1.
Derive the model for a double-spline. We want to estimate three dierent slopes for a relationship between y and x (if you want to think of a concrete example, use the income-to-age relationship we went over in lecture 10). You want to estimate the basic relationship y = 0 + 1 x + u, but you want to allow for dierent slopes depending on how old a person is. 1 if age < 18 2 if 18 age < 22 3 if 22 age Derive the proper model to use if you impose the restriction that the knots join (see gure).

Income

18

Age 22

To derive this model, follow the procedure we used in lecture 10 to derive the singlespline model. Only this time impose two restrictions instead of one. We still impose the same rst restriction that the rst and second spline meet at 18. This produces the model y = 1 + 1 x + 2 d2 (x 18) + u. Now we want to add a second spline to this model. Start with the equation above (no need to reinvent the function we already derived) and add to it another intercept and slope coecient, both of which kick-in after age 22. y = 1 + 1 x + 2 d2 (x 18) + 3 d3 + 3 d3 x + u, where d3 is a dummy variable that is equal to 1 when x 22 and 0 otherwise. Next, we need to impose a restriction in order to make the second and third spline meet at 22. To do this, we impose that our regression equation will take on the same value with or without the addition of the terms we just added (3 d3 + 3 d3 x): 1 + 1 (22) + 2 d2 (22 18) = 1 + 1 (22) + 2 d2 (22 18) + 3 d3 + 3 d3 (22). Canceling like-terms on both sides of the equals sign gives us 0 = 3 d3 + 3 d3 (22). This can be rearranged to get 3 = 223 . Now substitute this identity into the regression equation y = 1 + 1 x + 2 d2 (x 18) + 3 d3 + 3 d3 x + u = 1 + 1 x + 2 d2 (x 18) + (223 )d3 + 3 d3 x + u. Now we just need to do a little bit of rearranging to nish things o y = 1 + 1 x + 2 d2 (x 18) + (223 )d3 + 3 d3 x + u = 1 + 1 x + 2 d2 (x 18) + 3 d3 (x 22) + u.

2.
Download Solow-1957-technical-change.csv. This is Solows data from his 1957 study of technical change in the U.S. economy. The data are labeled year, q, k, and A. The meaning of q, k, and A are: label q k A meaning output capital-to-labor ratio index of technology 2

Solow considered several models. Among them: q/A = 0 + 1 log(k ) + u 1 q/A = 0 + 1 + u k log(q/A) = 0 + 1 log(k ) + u 1 log(q/A) = 0 + 1 + u k Get the csv-data into Stata. Run Solows models (use OLS) and report the results. See the le Homework-06-answers.do for the rest of the problems.

3.
Take a look at the data by constructing a scatterplot of q/A against k . Estimate the same models as above, but this time include a dummy variable (which you will have to create) for the years 1943 to 1949 (not a separate dummy variable for each year). What has changed?

4.
Solow thought that the whole relationship between q/A and the capital-to-labor ratio was fundamentally dierent before and after 1943 (what happened in 1943?). Construct a test of the hypothesis and carry it out. Be explicit. What models are you running? How are you constructing the test? Report the results of the test. (You should be reporting the results of 4 tests, since there are 4 models)

Discrete dependent variable problems

The next few problems use data from the National JTPA Study (NJS). JTPA stands for Job Training Partnership Act. Until recently, when the Workforce Investment Act replaced it, the programs funded under JTPA constituted the largest federal training program in the United States.

Variable name bd accept black hisp othrace age edlt10 ed10 11 ed13 15 edgt15

Description observation ID number 1 if person was accepted into JTPA; 0 otherwise 1 if person is black; 0 otherwise 1 if person is hispanic; 0 otherwise 1 if permson is not white, black, or hispanic; 0 otherwise age in years 1 if person has fewer than 10 years of completed schooling; 0 otherwise 1 if person has 10 or 11 years of completed schooling; 0 otherwise 1 if person has 13 or 15 years of completed schooling; 0 otherwise 1 if person has more than 15 years of completed schooling; 0 otherwise

The omitted racial/ethnic group is white, and the omitted years of schooling category is exactly 12 years of completed schooling.

5.
Using the Corpus Christi data, estimate a linear probability model of the probability of acceptance into JTPA at Corpus Christi conditional on race/ethnicity, age and years of completed schooling. Report and discuss the coecient estimates.

6.
Using the estimated coecients from the Question 5, generate predicted participation probabilities. Do any of these probabilities lie outside [0,1]? If so, do the observations corresponding to these values show any particular patterns in the values of the variables?

7.
Estimate probit and logit models of acceptance into JTPA in Corpus Christi conditional on race/ethnicity, age and years of completed schooling using these data. Are the probit and logit coecient estimates similar to one another and to the LPM estimates? Should they be? Explain why or why not.

8.
Calculate the marginal eects of each included variable in the probit, logit, and linear probability models for the same model described in Question 7. Are the probit, logit, and linear probability model marginal eects similar to one another? Should they be?