Use the data given in the following table and consider the following model ln Savings i Icirc sup2 1 Icirc sup2 2 ln Income i Icirc sup2 3 ln D i u i where ln stands for natural log and where D i 1 for 19701981 and 10 for 19821995 a What is the rationale behind assigning dummy values as suggested b...

a Since the dummy enters in the log form and since the log of zero is undefined by redefining the du ...

Use the data given in the following table and consider the following model: ln Savings i =

Question:

Use the data given in the following table and consider the following model:

Observation Savings Income Dum 1970 61 727.1 68.6 63.6 1971 790.2 855.3 1972 1973 89.6 965 1974 97.6 1054.2 1975 104.4 1

ln Savings_i = Î²₁ + Î²₂ ln Income_i + Î²₃ ln D_i + u_i

where ln stands for natural log and where D_i = 1 for 1970€“1981 and 10 for 1982€“1995.

a. What is the rationale behind assigning dummy values as suggested?

b. Estimate the preceding model and interpret your results.

c. What are the intercept values of the savings function in the two subperiods and how do you interpret them?

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Basic Econometrics

ISBN: 978-0073375779

5th edition

Authors: Damodar N. Gujrati, Dawn C. Porter

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Question Posted: Apr 30, 2018 06:06 AM

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Use the data given in the following table and consider the following model: ln Savings i =

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a Since the dummy enters in the log form and since the log of zero is undefined by redefining the du...View the full answer

Basic Econometrics

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