SOLUTION TO END OF CHAPTER EXERCISES FOR: Introduction to Econometrics, 3rd Edition James H. Stock, and Mark W. Watson. Questions And Answers

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Introduction to Econometrics, 3rd Edition, Global Edition by James H. Stock and Mark W. Watson Solutions to End-of-Chapter Empirical Exercises* *Limited distribution: For Instructors Only. If you ... find errors in the solutions, please pass them along to us at [email protected]. 1 Chapter 3: Review of Statistics 3.1 (a) Average Hourly Earnings, Nominal $’s Mean SE(Mean) 95% Confidence Interval AHE1992 11.63 0.064 11.50 – 11.75 AHE2008 18.98 0.115 18.75 – 19.20 Difference SE(Difference) 95% Confidence Interval AHE2008 − AHE1992 7.35 .132 7.09 – 7.61 (b) Average Hourly Earnings, Real $2008 Mean SE(Mean) 95% Confidence Interval AHE1992 17.83 0.099 17.63 – 18.03 AHE2008 18.98 0.115 18.75 – 19.20 Difference SE(Difference) 95% Confidence Interval AHE2008 − AHE1992 1.14 0.152 0.85 – 1.44 (c) The results from part (b) adjust for changes in purchasing power. These results should be used. (d) Average Hourly Earnings in 2008 Mean SE(Mean) 95% Confidence Interval High School 15.33 0.122 15.09 – 15.57 College 22.91 0.180 22.56 – 23.26 Difference SE(Difference) 95% Confidence Interval College-High School 7.58 0.217 7.15 – 8.00 (e) Average Hourly Earnings in 1992 (in $2008) Mean SE(Mean) 95% Confidence Interval High School 15.31 0.103 15.11 – 15.52 College 21.78 0.171 21.45 – 22.12 Difference SE(Difference) 95% Confidence Interval College-High School 6.47 0.200 6.08 – 6.86 2 (f) Average Hourly Earnings in 2008 Mean SE(Mean) 95% Confidence Interval AHEHS,2008 − AHEHS,1992 0.02 0.160 –0.29 – 0.33 AHECol,2008 − AHECol,1992 1.13 0.248 0.64 – 1.61 Col-HS Gap (1992) 6.47 0.200 6.08 – 6.86 Col-HS Gap (2008) 7.58 0.217 7.15 – 8.00 Difference SE(Difference) 95% Confidence Interval Gap2008 − Gap1992 1.01 0.295 0.71 – 1.31 Wages of high school graduates increased by an estimated 0.33 dollars per hour (with a 95% confidence interval of 0.06 – 0.60); Wages of college graduates increased by an estimated 1.24 dollars per hour (with a 95% confidence interval of 0.82 – 1.66). The College-High School increased by an estimated 0.91 dollars per hour. (g) Gender Gap in Earnings for High School Graduates Year Ym sm nm Yw sw nw Ym −Yw SE(Ym −Yw ) 95% CI 1992 16.55 7.45 2769 13.48 5.96 1874 3.07 0.20 2.68 – 3.45 2008 16.58 8.16 2537 13.15 6.27 1465 3.43 0.23 2.98 – 3.89 There is a large and statistically significant gender gap in earnings for high school graduates. In 2008 the estimated gap was $3.43 per hour; in 1992 the estimated gap was $3.07 per hour (in $2008). The increase in the gender gap is somewhat smaller for high school graduates than it was for college graduates. 3 4 Chapter 4: Linear Regression with One Regressor 4.1. (a) AHE = 1.08 + 0.60 × Age Earnings increase, on average, by 0.60 dollars per hour when workers age by 1 year. (b) Bob’s predicted earnings = 1.08 + (0.60 × 26) = $16.68 Alexis’s predicted earnings = 1.08 + (0.60 × 30) = $19.08 (c) The regression R2 is 0.03.This means that age explains a small fraction of the variability in earnings across individuals. 4.2. (a) Course Evaluation Beauty Index -2 -1 0 1 2 2 3 4 5 There appears to be a weak positive relationship between course evaluation and the beauty index. (b) Course Eval _ = 4.00 + 0.133 × Beauty. The variable Beauty has a mean that is equal to 0; the estimated intercept is the mean of the dependent variable (Course_Eval) minus the estimated slope (0.133) times the mean of the regressor (Beauty). Thus, the estimated intercept is equal to the mean of Course_Eval. (c) The standard deviation of Beauty is 0.789. Thus Professor Watson’s predicted course evaluations = 4.00 + 0.133 × 0 × 0.789 = 4.00 Professor Stock’s predicted course evaluations = 4.00 + 0.133 × 1 × 0.789 = 4.10 [Show More]

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