Introduction to Econometrics 3rd Edition by James Stock, Mark Watson

Exercise 8

The first six exercises refer to the table of estimated regressions on page 243, computed using data for 1998 from the CPS. The data set consists of information on 4000 full-time full-year workers. The highest educational achievement for each worker was either a high school diploma or a bachelor's degree. The worker's ages ranged from 25 to 34 years. The data set also contained information on the region of the country where the person lived, marital status, and number of children. For the purposes of these exercises, 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)
Ntheast = 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)
Using the regression results in column (2):
a. Is age an important determinant of earnings Use an appropriate statistical test and/or confidence interval to explain your answer.
b. Sally is a 29-year-old female college graduate. Betsy is a 34-year-old female college graduate. Construct a 95% confidence interval for the expected difference between their earnings.