A researcher investigating the determinants of crime in the United Kingdom has data for 42 police regions over 22 years. She estimates by OLS the following regression: In(cmrt)it = ai + t + Bunrtmit + B2proythit + B3 In(pp)t + uit: i= 1... 42 and t = 1,..., 22 where cmrt is the crime rate per head of population, unrtm is the unemployment rate of males, proyth is the proportion of youths, pp is the probability of punishment measured as (number of convictions(number of crimes reported). a and are area and year fixed effects, where aj equals one for area i and is zero otherwise for all i. and or is one in yeart and zero for all other years for t= 2 ... 22. 1 is not included. (a) What is the purpose of excluding @1? What are the terms a and likely to pick up? (1.5 marks) (b) Estimation by OLS using heteroskedasticity and autocorrelation consistent standard errors results in the following output, where the coefficients of the fixed effects are not reported: In(cmrt),= -1.631 x unrtmit+4.289 x proythit + 4.286 * In(pp)it: R2 = 0.954 (0.395) (0.379) (0.123) What is the effect of a ten percent increase in the probability of punishment? (1.5 marks) (c) To test for the relevance of the area fixed effects, you restrict the regression by dropping all entity fixed effects and a single constant is added. The relevant F-statistic is 35.28. What are the degrees of freedom? What is the critical value from your Ftable? (2 marks) A researcher investigating the determinants of crime in the United Kingdom has data for 42 police regions over 22 years. She estimates by OLS the following regression: In(cmrt)it = ai + t + Bunrtmit + B2proythit + B3 In(pp)t + uit: i= 1... 42 and t = 1,..., 22 where cmrt is the crime rate per head of population, unrtm is the unemployment rate of males, proyth is the proportion of youths, pp is the probability of punishment measured as (number of convictions(number of crimes reported). a and are area and year fixed effects, where aj equals one for area i and is zero otherwise for all i. and or is one in yeart and zero for all other years for t= 2 ... 22. 1 is not included. (a) What is the purpose of excluding @1? What are the terms a and likely to pick up? (1.5 marks) (b) Estimation by OLS using heteroskedasticity and autocorrelation consistent standard errors results in the following output, where the coefficients of the fixed effects are not reported: In(cmrt),= -1.631 x unrtmit+4.289 x proythit + 4.286 * In(pp)it: R2 = 0.954 (0.395) (0.379) (0.123) What is the effect of a ten percent increase in the probability of punishment? (1.5 marks) (c) To test for the relevance of the area fixed effects, you restrict the regression by dropping all entity fixed effects and a single constant is added. The relevant F-statistic is 35.28. What are the degrees of freedom? What is the critical value from your Ftable? (2 marks)
