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Assignment 2
Kanika Mahajan
Ashoka University
a) (5 marks) Write down a model that allows the variance of u to dier between males and
females. The variance should not depend on other factors.
1
No change in conclusions
f) (5 marks) Suppose as a researcher you are interested in analyzing if married females earn
a dierent wage than unmarried females after controlling for education, experience and race.
Write down a specication that allows you to test for this hypothesis. Conduct a suitable
test for your hypothesis. Assume homoskedastic errorr term.
Test: b4 = b4 + b7
This is equivalent to the below test:
Test: b7 = 0
b) (3 marks) Estimate the above model using OLS. Test for presence of AR(1) serial corre-
lation in the residuals of the above model.
Yes AR(1) serial correlated residuals
d) (3 marks) Suggest a way to correct for serial correlation in residuals in part b) and show
the revised estimates of the specication using it.
Estimate using OLS and correct SE's (HAC)
PraisWinsten method: It only corrects for AR(1)
c) (6 marks) Obtain the residuals from the model in part b). Regress the estmated residuals
on their lag (1) and obtain et .
ut = ρut−1 + et
Is ρ large and signicant? Are the obtained errors (et ) from the above model serially corre-
lated? Should they be theoretically serially correlated if AR(1) is the true model for serial
correlation in residuals of part b)?
Yes et are serially correlated. They should not be correlated if AR(1) is the true structure.
ρ=0.24, Signicant rho yes but in terms of magnitude not very large.