ECO 6426: Advanced Econometrics Department of Economics Florida Atlantic University

ECO 6426: Advanced Econometrics Department of Economics Florida Atlantic University

Assignment 8

1. Use the data set EARN.ASC to do the following:

(a) Run the following OLS regression:

UNION = α+ β1EXP + β2WKS + β3OCC + β4IND + β5SOUTH

+β6SMSA+ β7MS + β8FEM + β9ED + β10BLK + ui.

Create a confusion matrix to show actual versus predicted values of union participation. Calculate marginal effect of the continuous variable ‘EXP’ and the dummy variable ‘FEM’, respectively.

(b) Run a corresponding Logit model. Create its confusion matrix and calculate marginal effects of ‘EXP’ and ‘FEM’, respectively.

(c) Run a corresponding Probit model. Create its confusion matrix and calculate marginal effects of ‘EXP’ and ‘FEM’, respectively.

(Note: This is Example 1 of section 13.9 in the Baltagi’s textbook. You may check Table 13.4 and 13.5 to verify some of your results. Some explanations on Table 13.3: The OLS and Logit results in table 13.3 have been transformed so that they can be compared to Probit. In specific, if you calculate 0 .625 × Logit and 2 .5 × OLS − 1 .25 , you could match the table. The paragraph before table 13.3 explains this in detail. For our homework, we do not have to do these transformations at all. We prefer another way to compare them – marginal effects.)

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