C13.12 Use the data in MURDER.RAW for this exercise. (i) Using the years 1990 and 1993, estimate the equation mrdrteit
0  1d93t  1execit  2unemit  ai  uit, t
1,2 by pooled OLS and report the results in the usual form. Do not worry that the usual OLS standard errors are inappropriate because of the presence of ai . Do you estimate a deterrent effect of capital punishment? (ii) Compute the FD estimates (use only the differences from 1990 to 1993; you should have 51 observations in the FD regression). Now what do you conclude about a deterrent effect? (iii) In the FD regression from part (ii), obtain the residuals, say, eˆi. Run the Breusch-Pagan regression eˆi 2 on execi , unemi and compute the F test for heteroskedasticity. Do the same for the special case of the White test [that is, regress eˆi 2 on yˆ i ,yˆ i 2, where the fitted values are from part (ii)]. What do you conclude about heteroskedasticity in the FD equation? (iv) Run the same regression from part (ii), but obtain the heteroskedasticityrobust t statistics. What happens? (v) Which t statistic on execi do you feel more comfortable relying on, the usual one or the heteroskedasticity-robust one? Why?