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Chapter 4, Problem 11CE Bookmark Show all steps: ON

Chapter A Problem
Chapter B

Chapter C Use the data in HTV.RAW to answer this question. See also Computer Exercise C10 in Chapter
3.
Chapter D
(i) Estimate the regression model
Chapter E

Chapter 1
by OLS and report the results in the usual form. Test the null hypothesis that educ is linearly
Chapter 2 related to abil against the alternative that the relationship is quadratic.

Chapter 3 (ii) Using the equation in part (i), test against a two-sided alternative. What is the
p-value of the test?
Chapter 4
(iii) Add the two college tuition variables to the regression from part (i) and determine whether
1CE
they are jointly statistically significant.
1P (iv) What is the correlation between tuit17 and tuit18? Explain why using the average of the
tuition over the two years might be preferred to adding each separately. What happens when you
2CE
do use the average?
2P
(v) Do the findings for the average tuition variable in part (iv) make sense when interpreted
3CE causally? What might be going on?

Reference: Excercise C10:

3P
Use the data in HTV.RAW to answer this question. The data set includes information on wages,
4CE
education, parents education, and several other variables for 1,230 working men in 1991.
4P (i) What is the range of the educ variable in the sample? What percentage of men completed
12th grade but no higher grade? Do the men or their parents have, on average, higher levels of
5CE
education?
5P
(ii) Estimate the regression model
6CE

6P

by OLS and report the results in the usual form. How much sample variation in educ is explained
7CE
by parents education? Interpret the coefficient on motheduc.
7P
(iii) Add the variable abil (a measure of cognitive ability) to the regression from part (ii), and
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report the results in equation form. Does ability help to explainvariations in education, even
after controlling for parents education? Explain.
8P
(iv) (Requires calculus) Now estimate an equation where abil appears in quadratic form:
9CE

9P
Using the estimates use calculus to find the value of abil, call it abil*, where educ is
10CE
minimized. (The other coefficients and values of parents education variables have no effect; we
10P are holding parents education fixed.) Notice that abil is measured so that negative values are
permissible. You might also verify that the second derivative is positive so that you do indeed
11CE
have a minimum.
11P
(v) Argue that only a small fraction of men in the sample have ability less than the value
12P calculated in part (iv). Why is this important?

(vi) If you have access to a statistical program that includes graphing capabilities, use the
Chapter 5
estimates in part (iv) to graph the relationship beween the predicted education and abil. Let
Chapter 6 motheduc and fatheduc have their average values in the sample, 12.18 and 12.45, respectively.

Chapter 7

Chapter 8
Step-by-step solution
Chapter 9

Chapter 10
Step 1 of 7
Chapter 11

Chapter 12 (i)

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Chapter 13 Estimating the regression model given by:

Chapter 14
The result is:
Chapter 15

Chapter 16

Chapter 17

Chapter 18

The equation form of the model is given by:

Testing the null hypothesis that is linearly related to against the alternative that the
relationship is quadratic using Wald test, the result is:

It shall be observed that the p-value of F-statistic is 0.0000 which is less than the critical p-value
of 0.05 at 5% level of significance indicating that the null hypothesis that is linearly related
to is rejected. Hence, it can be inferred that the relationship between and is
quadratic

Comments (1)

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Step 2 of 7

(ii)

Given that

The regression model of the concern is:

Comment

Step 3 of 7

The usual form of the regression model is:

Testing for the equality of and using the Wald test, the result is:

Since, the p-value of F-statistic is 0.0531 which is greater than the critical p-value of 0.05 at 5%
level of significance indicating that is rejected at 5% level of significance

Comments (1)

Step 4 of 7

(iii)

The two college tuition variables are

On adding to the regression model, the result is:

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On testing for the joint significance of using Wald test, the result is:

Comment

Step 5 of 7

The p-value of F-statistic is 0.4322 which is greater than the critical p-value of 0.05 at 5% level of
significance indicating that the null hypothesis is accepted. That means, the
variables are not jointly statistically significant at 5% level of significance

Comment

Step 6 of 7

(iv)

The correlation between is given by CORREL ( ) function in excel

It worked out to be 0.980833

Using the average of the tuition over the two years might be preferred to adding each separately
because of the very high degree of correlation between

Including both the variables would lead to the problem of perfect multi-collinearity

When the averaged values of the variables are used and the regression model is
executed, the result is:

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When the averaged values of are used, its p-value reduced to 0.1973

Comment

Step 7 of 7

(v)

The coefficient of the average values of is 0.015963

It is statistically insignificant at 5% level of significance

It does not make sense when the coefficient the average values of is interpreted
casually. It says that when the average college tuitions increases by 1 unit, the highest education
grades completed by 1991 increases statistically insignificantly by 0.015963, ceteris paribus

It might have been included casually just to indicate that the college tuitions is a unavoidable
factor in determining the highest education grade completed by 1991,

Comment

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