Department of Economics

Columbia University

Econometrics W3412
Fall 2011
Midterm Exam
Section 3 Prof. Seyhan Erden Arkonac

Instructions
1. Do not turn this page until so instructed.
2. The exam has three questions. Please put your answers in the space provided under each
question.
3. You are permitted to use a simple calculator. No computers, wireless, or other electronic
devices without prior permission. You may not share resources with anyone else.
4. Some questions ask you to draw a real-world judgment in a problem of practical importance.
The quality of that judgment counts. For example, consider the question: It is 10oF outside.
In your judgment, why are so many people wearing heavy coats? The answer, To stay
warm would receive more points than the answer, Because they are fashion-conscious.
5. Put your name and Columbia UNI on the cover of the exam.

Name: ___________________________________________________
UNI: ____________________________________________________

Question 1 [30 points]

Suppose that a researcher, using fictitious data on sugar consumption (SC) and diabetes (D),
estimates the OLS regression. SC is in grams per day and D is in number of patients per 100,000
people.
D = 100.0 + 2.5 x SC, R = 0.10, SER = 10.
(20.0) (0.5)
a) (6p) Construct a 95% confidence interval for 1, the regression slope coefficient.

b) (6p) Calculate the p-value for the one-sided test of the null hypothesis H0: 1 = 1.5. Do
you reject the null hypothesis at 1% significance level? At the 5% significance level?

c) (6p) Calculate the p-value for the two-sided test of the null H0: 1 = 2.0. Without doing
any additional calculations, determine whether 2.0 is contained in the 99% confidence
interval for 1.

d) (6p) Construct a 90% confidence interval for 0, the intercept coefficient? Explain what
this confidence interval means.

e) (6p) Interpret R.

Question 2 [33 points]

In the dataset construction, the country is divided into four regions: Northeast, Midwest, South,
and West. For the purposes of this exercise let
AHE = average hourly earnings (in 1998 dollars)
College = binary variable (1 if college, 0 if high school)
Female = binary variable (1 if female, 0 if male)
Age = age (in years)
Northeast = binary variable (1 if Region = Northeast, 0 otherwise)
Midwest = binary variable (1 if Region = Midwest, 0 otherwise)
South = binary variable (1 if Region = South, 0 otherwise)
West = binary variable (1 if Region = West, 0 otherwise)

a) (6p) Mark is a 25-year-old male college graduate. John is a 30-year-old male college
graduate. Using regression 2, construct a 95% confidence interval for the expected
difference between their earnings.

b) (6p) Write down the STATA command for column (1).

c) (6p) Using the table, find a test for the null that all coefficients on Northeast, Midwest,
and South are zero at 5% significance level.

d) Mary is a 30-year-old female college graduate from the South. Danielle is a 30-year-old
female college graduate from the West. Jennifer is a 30-year-old female college graduate
from the Midwest.
i. (5p) Construct a 90% confidence interval for the difference in expected earnings
between Mary and Danielle.

ii. (5p) Explain how you would construct a 95% confidence interval for the difference
in expected earnings between Mary and Jennifer.

iii. (5p) What happens if we add the dummy variable West in column (3)?

Question 3: [37 points]

The following regressions are utilizing the data set WAGE2.dta which is used in the article by M.
Blackburn and D. Neumark (1992), Unobserved Ability, Efficiency Wages, and Interindustry
Wage Differentials, Quarterly Journal of Economics 107, 1421-1436.
DATA DESCRIPTION, FILE: WAGE2.dta
Variable
Definition
lwage
Logarithm of hourly wage.
educ
Number of years spend in education.
exper
Number of years worked in the industry.
expersq
Experience squared.
female
= 1 if observation belongs to a female.
= 0 otherwise.
nonwhite
= 1 if the observation belongs to a non-white person.
= 0 if the observation belongs to a White person.
femxnonw
Female times non-white.
femxeduc
Female times educ

Regression 1:

Number of obs =
526
F( 5,
520) =
65.58
Prob > F
= 0.0000
R-squared
= 0.3997
Root MSE
= .41379
-----------------------------------------------------------------------------|
Robust
lwage |
Coef.
Std. Err.
t
P>|t|
[95% Conf. Interval]
-------------+---------------------------------------------------------------educ |
.0839129
.0077567
10.82
0.000
.0686746
.0991512
exper |
.0389529
.0046919
8.30
0.000
.0297355
.0481704
expersq | -.0006872
.000101
-6.80
0.000
-.0008856
-.0004887
female | -.3374241
.0362149
-9.32
0.000
-.4085696
-.2662787
nonwhite | -.0213127
.0627157
-0.34
0.734
-.1445201
.1018947
_cons |
.3954016
.1102126
3.59
0.000
.1788849
.6119182
------------------------------------------------------------------------------

Regression 2:

Number of obs =
526
F( 6,
519) =
55.49
Prob > F
= 0.0000
R-squared
= 0.4024
Root MSE
= .41329
-----------------------------------------------------------------------------|
Robust
lwage |
Coef.
Std. Err.
t
P>|t|
[95% Conf. Interval]
-------------+---------------------------------------------------------------educ |
.0845539
.007733
10.93
0.000
.0693621
.0997458
exper |
.0397467
.0046833
8.49
0.000
.0305462
.0489472
expersq | -.0007046
.000101
-6.97
0.000
-.0009031
-.0005061
female | -.3182875
.0380722
-8.36
0.000
-.3930822
-.2434929
nonwhite |
.063234
.0886931
0.71
0.476
-.1110076
.2374756
femxnonw | -.1811952
.1226804
-1.48
0.140
-.4222063
.059816
_cons |
.3728613
.110089
3.39
0.001
.1565864
.5891361
------------------------------------------------------------------------------

a) (6p) Interpret the coefficient of exper in Regression 1. How many years of experience
optimizes wage?

b) (6p) Interpret the coefficient of nonwhite in Regression 1.

c) (6p) Compare the model specification in Regressions 1 and 2.

d) (7p) Write the the null hypothesis to test if there is a significant wage difference between
white females and nonwhite females. (No need to carry the test just write the null
hypothesis)

e) (6p) Consider regression 3

Regression 3:

Number of obs =
526
F( 6,
519) =
54.62
Prob > F
= 0.0000
R-squared
= 0.3997
Root MSE
= .41419
-----------------------------------------------------------------------------|
Robust
lwage |
Coef.
Std. Err.
t
P>|t|
[95% Conf. Interval]
-------------+---------------------------------------------------------------educ |
.0840344
.0091177
9.22
0.000
.0661223
.1019465
exper |
.0389502
.0046922
8.30
0.000
.0297321
.0481683
expersq | -.0006871
.0001011
-6.80
0.000
-.0008856
-.0004886
female | -.3335919
.1888261
-1.77
0.078
-.7045494
.0373656
nonwhite | -.0212238
.0629173
-0.34
0.736
-.1448278
.1023801
femxeduc | -.0003064
.0151172
-0.02
0.984
-.0300047
.0293919
_cons |
.39384
.1270193
3.10
0.002
.1443048
.6433752
------------------------------------------------------------------------------

Interpret the coefficient of female, does the wage gap between males and females narrow
or widen as both become more educated? Explain your answer.

f) (6p) Consider regression 4:

Regression 4:

Number of obs =
526
F( 5,
520) =
48.50
Prob > F
= 0.0000
R-squared
= 0.3527
Root MSE
= .42969
-----------------------------------------------------------------------------|
Robust
lwage |
Coef.
Std. Err.
t
P>|t|
[95% Conf. Interval]
-------------+---------------------------------------------------------------educ |
.0877603
.012387
7.08
0.000
.0634256
.112095
exper |
.00745
.0051422
1.45
0.148
-.0026521
.0175521
female | -.3450433
.0383246
-9.00
0.000
-.4203333
-.2697532
nonwhite | -.0080678
.0642541
-0.13
0.900
-.1342973
.1181617
educxexper |
.001660
.0004391
0.38
0.706
-.0006967
.0010286
_cons |
.5264981
.1677327
3.14
0.002
.196981
.8560151
------------------------------------------------------------------------------

What is the difference in the predicted effect of a 2-years masters degree on someone with
no job experience and someone with 5 years of job experience. Explain your answer. (i.e.
If you are considering a Masters degree after college, will your wage be significantly
higher if you work for 5 years first and then have the degree? As opposed to having your
degree right after college)

10

11

Standard Normal Distribution Table (from Ulberg, 1987)

12

13