## Modelling with Econometrics: Challenges and Solutions

Modelling with Econometrics: Challenges and Solutions

This project is worth 15% of the total mark and should be uploaded online in a Word document as well as Eviews workfile before 11.59 pm on May 14 (Thursday). No late assignments are accepted. Your report should provide concise and relevant answers to all questions below and the corresponding computer outputs. In conducting statistical tests throughout, clearly state all relevant information, such as the null and alternative hypotheses, the distribution you use, the level of significance, the decision rule (critical value or p-value).
Question 1
? Use the assignment_two_data.xlsx. Definitions of each variable is also in the data file. Consider the following model. Compute the linear least squares regression and report the results. Comment on your estimations of each variable and conduct the joint significance test, normality test, and homoscedasticity test (3 marks).
lwageit=ß0+ ß1 OCCit+ß2 SMSAit+ß3 MARit+ß4 EDUi+ ß5 FEMi +ß6 EXPit+eit
? Test the hypothesis that neither education (ED) nor experience (EXP) is a significant determinant of the expected log wage (1 mark).
? In the above equation the difference between men and women is explained by a shift of the regression function. Now, assume different regression functions apply to men and women. Fit these models, and conduct appropriate tests to test the null hypothesis that the same equation applies to men and women (3 marks).
Question 2
? The data you have used so far is pooled data for seven years (595 observations each). Run the separate models for each year and then test whether pooled model apply to each year using appropriate test (3 marks).
? Include year dummy variables in your pooled estimation and comment on your results using appropriate tests (2 marks).
? Does your model suffer from omitted variable bias? What variable you would consider adding and re-estimating the model. Refit the model based on your conclusions. Enrich the results with knowledge you gained studying this subject, economics and quantitative subjects at La Trobe University and overseas. (3 marks)