ASSIGNMENT 03

DUE DATE: 2 August 2021

UNIQUE NUMBER: 899315

INSTRUCTIONS

Please include your name and student number on the front page of your submission, and
preferably on each page of your answer sheet.

Remember to include a screenshot of your Turnitin front page as part your assignment, which
needs to be submitted on the myUnisa assignment submission portals. Both the match
overview and individual matches should be clearly visible. It can take up to 24 hours for these
reports to be generated, so make sure to plan accordingly. The general rules used are for
maximum overall and individual matches of 30% and 5% respectively. Assignments submitted
without a Turnitin report will be penalised.

All the assignments for ECS4863 are strictly individual assignments. This means you are NOT
allowed to work in groups or make use of any human assistance. Indications of plagiarism
and/or cheating will be dealt with according to the University’s Disciplinary Processes.

All the best with the assignment!

This assignment deals with the following assessment criteria:

- Qualitative response regression models

- Simultaneous equation models

Question 1: (12 marks)

This question analyses the employment status of 2000 individuals.

Consider the following model:

Work i =  0 + 1 Age i +  2 Educationi +  3 Married i +  4Children i + i

The variables are:

Work = employment status (1 = person is employed; 0 = otherwise)

Age = age in years
Education = number of years of schooling
Married = marital status (1 = married; 0 = otherwise)
Children = number of children

The data is available in the MS Excel file “ECS4863 2021 Assignment 03 data”

Open Rubric
1.1 Calculate the number and percentage of individuals who are employed and
unemployed. (2)

1.2 Estimate the preceding model using linear probability modelling (LPM). Write
down the estimated results, and interpret them in terms of economic meaning
and statistical significance. (4)

1.3 Estimate the preceding model using logistic modelling (Logit). Write down the
estimated results, and interpret them in terms of economic meaning and
statistical significance. (4)

1.4 Which model do you prefer: LPM or Logit? (motivate your answer) (2)

Question 2: (10 marks)

2.1 Explain your understanding of qualitative information. Also mention its link to
binary variables. (4)

2.2 Distinguish between the linear probability, logit and probit models. (6)

Question 3: (15 marks)

A binomial logit model is estimated to determine the ownership of a Bank Debit card in a
selected Suburb in South Africa. The Bank Debit card is a binary variable with Y=1 for debit
card holder and zero otherwise. The number of households is 60. The estimated binomial logit
model is given by 𝐿𝑖

𝐿𝑖 = -0.55574 + 0.0012𝐵𝑖 - 0.1202𝑇𝑖 – 1.352𝑅𝑖 + 1.452𝐸𝑖

z = (−0.7316) (1.97) (−2.567) (-1.98) (2.89)
2
McFadden R = 0.1007,
LR statistics = 7.6073,
Prob(LR statistics) = 0.0155

where 𝐵𝑖 = account balance in rands

𝑇𝑖 = frequency of ATM transactions
𝑅𝑖 = 1 if interest is paid on the account balances and zero otherwise.
𝐸𝑖 = 1 if employed in formal sector and zero if in the informal sector.

3.1 What are your priori expectations of each determinant on the Bank Debit card?
(2)

3.2 Interpret the estimated coefficient in the model. (8)

2
3.3 Discuss the McFadden R2, LR statistics and how you would use the count R2
in model. (3)

3.4 Assuming other factors are zero what is the probability that an account balance
has R5000? (2)

Question 4: (13 marks)

4.1 Consider the following simultaneous-equation model:

Yt =  0 + 1Yt −1 +  2 I t + 1t

I t =  3 +  4Yt +  5Qt +  2 t

Ct =  6 +  7Yt +  8Ct −1 +  9 Pt + 3t

Qt = 10 + 11Qt −1 + 12Qt −2 + 13 Rt +  4 t

Where:
Y = National Income
I = Investment
C = Consumption
Q = Profits
P = Price index
R = Productivity

Which of the variables are endogenous and which are exogenous? Make sure to also
include the lagged variables in your answer. (10 x ½ = 5)

4.2 What do you understand by the term “identification” (2)

4.3 Describe a rule for determining whether a system of equations is identified. (2)

4.4 Are the following statements true or false? Explain. (4)

(i) A Simultaneous equations model is suitable whenever two variables are

determined simultaneously.
(ii) A behavioural equation is one that expresses an endogenous variable solely in
terms of the predetermined variables and stochastic disturbances.

[Total = 50 marks]