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1. Redo the example for job training grants and firm scrap rates (on page 12 of the lecture notes from week 9) by making the
1. Redo the example for job training grants and firm scrap rates (on page 12 of the lecture notes from week 9) by making the following adjustment. Make sure to include the formula to calculate? as well as clearly define what each part is, e.g. what is X, y, 0, etc. a. Include the lag of log(scrap) (Iscrap_1) in your model and calculate the OLS estimator. Please note that by including Iscrap 1, the observations from year 1987 have missing values and need to be removed. Your model is (10 pts) Iscrap # 1 13 2(year = 1988) +3 1(year = 1989) +8 grant to grant 1 +8 lscrap_1 + u. b. Compare the results obtained from part a) with what we get in class from a fixed efffect model. What is the difference between the two versions off , and? ? Why is there such a difference? (5 pts) c. Include the lag of log(scrap) (Iscrap 1) in your model and calculate " using the random effect model: (10 pts) Iscrap $ 1 8 2(year = 1988) + I(year = 1989) - grant B grant_1 0 lscrap Itctu. d. After running a test for Ho : 02 =0 vs. Ho : 02 =0. We get a test statistic T = 1.87. We know that for a random variable Z following a standard normal distribution, P(Z
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