Expert answer:EECON 3303.1 ASSIGNMENT 3
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Atul A. Dar
ECON 3303.1
Assignment 3
November 2, 2017
This assignment is due in class on Thursday, November 9. Please pay attention to the following:
1. Make sure you attach a copy of your computer printouts to the assignment. Camera shots are not acceptable.
2. Answers to questions should be written/typed in the computer printout.
3. See me if are not sure about anything on this assignment.
Question 1 (12 points)
Return to the wage function for Atlantic Canada that we looked at in class. Suppose you want to look at males and
females separately:
Females: E(w|S) = β1 + β2S
Males: E(w|S) = α1 + α2S
Here w= weekly wages ($) and S=schooling (years). The data file is wages.dta
A. Use STATA to get some summary statistics for males and females, and to run the two wage regressions. (5 points)
Note: the gender variable in the data file is labeled sex and is coded 1 if the person is female and 2 if the person is
male. To get gender specific results, use the following commands:
su w s if sex ==1
su w s if sex==2
reg w s if sex==1
reg ws if sex==2
B. Present in a table your summary statistics and write a short note comparing male-female differences in wages and
schooling. (3 points)
C. Present your estimated regressions, and compare the returns to schooling for males and females. (4 points)
Question 2 (18 points)
Consider the model: yt = β1 + β2xt + et. We use the subscript t because now the observations are time series observations.
Suppose yt = change in the unemployment rate (U) between periods t and (t-1) and xt=Gt = growth in real GDP in period t.
This would make the above equation a version of Okun’s law, which states that the unemployment rate is inversely related
to the growth rate. (that is, we expect β2 <0). In other words, if x rises in given any period t, it is expected to reduce
unemployment rate in that period, hence reducing y in that period.
In the file macro.dta, you are given quarterly data on the unemployment rate and real GDP growth for the US, Canada
and Australia from 1990.Q1 to 2014.Q3. In this file, the first letter attached to variables identifies the variable (U for
unemployment and G for the growth rate); the next three letters identify the country: AUS for Australia, CAN for
Canada, and USA for the US). Thus, UCAN is the unemployment rate in Canada, and GCAN is the growth rate of real GDP
in Canada.
A. To use the data, you first need to tell STATA that your data are time series. This requires you use the tsset command
after loading your data into STATA.
tsset quarter
Obtain some summary statistics on growth and unemployment rates for each country. Then run your regressions
for each country. Since the data on unemployment is on the unemployment rate rather than the change in the
unemployment rate (y), you can use the following command (I use Canada as an example) to run your regression:
reg d.ucan gcan
Here the d. pre-fix on ucan instructs STATA to take the change in this variable. You can repeat this for the
regressions for the US and Australia. (8 points - make sure your printout is attached.)
B. Present your summary statistics. Briefly discuss the differences between the three countries. (3 points)
C. Present your estimated regressions. Do the results support Okun’s law? How do the countries compare in terms of
the impact of growth on unemployment? (6 points)
D. Suppose policymakers desire to cut unemployment rates by 1 percentage point (that is, ŷ=1). Using your estimated
regression, by how much would the three countries differ in terms of the growth rates of GDP that would achieve
this reduction. (3 points)
...
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