BSc-III

Econometrics I (ECO 204)

Quiz 2
Spring 2021
Azam Chaudhry Aimal Tanvir
Name: _________________ Section: _______
Total Marks: 50 marks

The data in WAGE2 on working men was used to estimate the following equation, where educ is
years of schooling, sibs is number of siblings, meduc is mother’s years of schooling.

A linear model explaining years of education is:

𝒆𝒅𝒖𝒄𝒊 = 𝜷𝟎 + 𝜷𝟏 𝒔𝒊𝒃𝒔𝒊 + 𝜷𝟐 𝒎𝒆𝒅𝒖𝒄𝒊 + 𝝁𝒊
a. What are the most likely signs for 𝛽1 𝑎𝑛𝑑 𝛽2? (5 marks)

b. Do you think ‘sibs’ and ‘meduc’ are likely to be correlated? Explain why the correlation
might be positive or negative. If the two variables are correlated, then will it seem to
impact the ceteris paribus interpretation of the estimated regression coefficients? Explain.
(10 marks)

c. The regression output for your model is reported below. Discuss your results. Begin by
forming your equation, interpreting your slope estimates, reporting the significance of
your estimates, and explaining the predictive power of your model. (15 marks)

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Instead of the regression estimated above you end up estimating the following regression:

d. Do you think the coefficients estimated by this regression are an appropriate way of
estimating the relationship between ‘educ’ and ‘sibs’? Explain why or why not? (5
marks)

e. What other variables we can add to estimate the relationship between ‘educ’ and ‘sibs,
what will be the relationship, explain? (5 marks)

f. The power of multiple regression analysis is that it provides a ceteris paribus

interpretation even though the data has NOT been collected in a ceteris paribus fashion.
Explain how can one show that the estimated coefficient of sibs in part (c) can be
interpreted as the impact of sibs on educ while holding meduc constant. (10 marks)

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