Introductory Econometrics: A Modern Approach 6th Edition by Jeffrey M Wooldridge

Exercise 18

In Problem 3.3, we estimated the equation

where we now report standard errors along with the estimates.

(i) Is either educ or age individually significant at the 5% level against a two-sided alternative? Show your work.

(ii) Dropping educ and age from the equation gives

Are educ and age jointly significant in the original equation at the 5% level? Justify your answer.

(iii) Does including educ and age in the model greatly affect the estimated tradeoff between sleeping and working?

(iv) Suppose that the sleep equation contains heteroskedasticity. What does this mean about the tests computed in parts (i) and (ii)?

Step 1 of 4

(i)

With df = 706 – 4 = 702, use the standard normal critical value (df = 8 from the table), which is 1.96 for a two-tailed test at the 5% level. The t-statistic is calculated as shown below:

Since,

Hence, researcher fails to rejectat the 5% level. Also, t-statistic for age is calculated below:

Hence,

So, age is also statistically insignificant at the 5% level.