EC 570 Econometrics

Homework 4

This homework re-examine two questions in the mid-term.

Question 1: Rental Market

Recall three regression equations (for female, male, and total sample) for the rental market (data):

RPP = β₀ + β₁ DIST + β₂ RM + ε

where

RENT = Total monthly rent in dollars
NO = Number of persons in apartment
RM = Number of rooms
SEX = 1 if female; 0 if male
DIST = Distance from center of campus, blocks
RPP = RENT/NO = Rent per person

(1.1) Do you find any evidence of sexual discrimination in this set of rental data based on the estimated regression equations? Answer this question using two approaches: sample separation approach (Chow test) and dummy variable approach.

(1.2) One of the advantages of sample separation approach is that the difference of regression variances for male and female sub-samples can be estimated and tested explicitly. Setup and perform the appropriate test procedure for the change in regression variances in between the estimated male and female equations.

Question 2: Technological Change in the U.S. Economy

Work on Greene's (7th ed. or 6th ed.) Chapter 6: Application 3.

This homework is based on the classical study (paper):

Solow, R. "Technological Change and the Aggregate Production Function." Review of Economics and Statistics, 39, 1957, pp.312-320.

The Solow original data (several variables are omitted) is avialable here (see also, Greene's Table F6.4):

Year = 41 Yearly Observations, 1909-1949
q = Output
k = Capital/labor ratio
A = Index of technology

Four linear regression models were considered:

q/A = a + b ln(k) + e
q/A = a + b (1/k) + e
ln(q/A) = a + b ln(k) + e
ln(q/A) = a + b (1/k) + e

Formulate and perform appropriate tests and compare the above four non-nested models. Which model is a better one? Explain.