Econometrı́a II - Taller No.

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1. Answer:

(a) Why is it necessary to use two subscripts, i and t, to describe panel data? What
does i refer to? What does t refer to?
(b) A researcher is using a panel data set on n = 1000 workers over T = 10 years
(from 2001 through 2010) that contains the workers’ earnings, gender, education,
and age. The researcher is interested in the effect of education on earnings. Give
some examples of unobserved person-specific variables that are correlated with
both education and earnings. Can you think of examples of time-specific variables
that might be correlated with education and earnings? How would you control
for these person-specific and time-specific effects in a panel data regression?
(c) Can the regression that you suggested in response to question (b) be used to
estimate the effect of gender on an individual’s earnings? Can that regression be
used to estimate the effect of the national unemployment rate on an individual’s
earnings? Explain.
(d) In the context of the regression you suggested for question (b), explain why the
regression error for a given individual might be serially correlated.

2.
yit = β1 xit1 + β2 xit2 + · · · + βk xitk + ai + uit , t = 1, 2, · · · , T. (1)
Suppose that the idiosyncratic errors in (1), uit : t = 1, 2, · · · , T , are serially un-
correlated with constant variance, σu2 . Show that the correlation between adjacent
differences, ∆uit and ∆ui,t+1 , is -0.5.

3. In order to determine the effects of collegiate athletic performance on applicants, you

collect data on applications for a sample of Division I colleges for 1985, 1990, and 1995.

(a) What measures of athletic success would you include in an equation? What are
some of the timing issues?
(b) What other factors might you control for in the equation?
(c) Write an equation that allows you to estimate the effects of athletic success on
the percentage change in applications. How would you estimate this equation?
Why would you choose this method?

4. Answer based on the article: Working and Educated Women: Culprits of a European
Kinder-Crisis? 1

(a) Authors didn’t specify how they correct autocorrelation. How would you do it?
(b) What are the factors do seem to negatively contribute to countries’ fertility rates?
(c) The constant term is significant. What implications does this have for the model?
1
DiCioccio, E. & Wunnava, P.Eastern Econ J (2008) 34: 213.
https://doi.org/10.1057/palgrave.eej.9050029

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 (d) Between the two models, what would you use?. Explain
(e) Based on the paper. What should be governments and firms priorities?

Computer exercise
5. For this exercise, we use jtrain.xlsx to determine the effect of the job training grant on
hours of job training per employee. The basic model for the three years is:

hrsempit = β0 + δ1 d88t + δ2 d89t + β1 grantit + β2 granti,t−1 + β3 log(employit ) + ai + uit

(a) Estimate the equation using fixed effects. How many firms are used in the FE
estimation? How many total observations would be used if each firm had data on
all variables (in particular, hrsemp) for all three years?
(b) Interpret the coefficient on grant and comment on its significance.
(c) Is it surprising that grantt−1 is insignificant? Explain.
(d) Do larger firms provide their employees with more or less training, on average?
How big are the differences? (For example, if a firm has 10% more employees,
what is the change in average hours of training?)