HomeWork-1

Problems:
1)From table 13.1, it is given that coefficient of Y84 is 0.545, which is nothing but the difference in average
fertility rate from 1972 to 1984 considering there are no variable changes, but if we consider increase in
average education we get a new equation -0.128(13.3-12.2) = -0.141
Where -0.128 is intercept change
(13.3-12.2) is average change in education
-0.141 is an approximate value
Now that weve considered average education level, change in average fertility would be.,
0.545- (-0.141) =0.545+0.141=0.686
2)

Above equation 13.9 has all the controls, thats why it is preferred, but lets take a look at the other
equations.

As we can see
Eq:1 doesnt consider Y81 dummy variable, so homes that are near the incinerator have appreciated in
value over the three years., why? Because, Eq:1 has omitted variable bias.

Eq:2 is omitting the dummy variable nearinc for it is near the incinerator, means it wont allow
appreciation for homes near & far from incinerator before it was even built.
Lets say the incinerator was located close to less valuable homes, then omitting nearinc would lower
housing prices far more than expected. So again weve an omitted variable bias.

3) We cant use first differences when we have independent cross sections in two years because there
are no repeated observations on the same cross sections in each time period, so theres no point in
finding pairs to difference.
Computer Exercises:

C1(i):

F-value is 1.1588 & p-value is 0.3275, from that we can say the living environment variables are jointly
insignificant.
C1(ii):

F-value is 3.0117 & p-value is 0.02926, from that we can say region dummy variables are jointly
significant at the 5% level.
C3(i): We know that houses farther away from the incinerator must be worth more when compared to
houses nearer, means > 0. If > 0, means more expensive homes are located far away from the
incinerator.

C3(ii):

We got 1^ =0.04819 & it is expected sign, that is not statistically significant because t-value is 0.589.

C3(iii):

If the list of housing characteristics is added to the regression, the coefficient of Y81.log(dist) from the
result shows 6.247e-02 with standard error 5.028e-02 which says that estimated effect is larger, the
t-value is 1.242, the p-value is 2.2e-16

C3(iv):
Because there are more factors are added in the part(iii), age, room, land, area and so on. That means
that such these factors are not significant for estimating distance from each home to the incinerator site.