Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Use the data in 401KSUBS.RAW for this exercise. The equation of interest is a linear probability model: pira = 0 + B1p401k + B2inc +

image text in transcribed

Use the data in 401KSUBS.RAW for this exercise. The equation of interest is a linear probability model: pira = 0 + B1p401k + B2inc + B3inc2 + B4age + 5age2 + u. The goal is to test whether there is a tradeoff between participating in a 401(k) plan and having an individual retirement account (IRA). Therefore, we want to estimate 31. (iii) The variable e401k is a binary variable equal to one if a worker is eligible to participate in a 401(k) plan. Explain what is required for e401k to be a valid IV for p401k. Do these assumptions seem reasonable? (iv) Estimate the reduced form for p401k and verify that e401k has significant partial correlation with p401k. Since the reduced form is also a linear probability model, use a heteroskedasticity-robust standard error. (v) Now, estimate the structural equation by IV and compare the estimate of B1 with the OLS estimate. Again, you should obtain heteroskedasticity robust standard errors. (vi) Test the null hypothesis that p401k is in fact exogenous, using a heteroskedasticity-robust test. Use the data in 401KSUBS.RAW for this exercise. The equation of interest is a linear probability model: pira = 0 + B1p401k + B2inc + B3inc2 + B4age + 5age2 + u. The goal is to test whether there is a tradeoff between participating in a 401(k) plan and having an individual retirement account (IRA). Therefore, we want to estimate 31. (iii) The variable e401k is a binary variable equal to one if a worker is eligible to participate in a 401(k) plan. Explain what is required for e401k to be a valid IV for p401k. Do these assumptions seem reasonable? (iv) Estimate the reduced form for p401k and verify that e401k has significant partial correlation with p401k. Since the reduced form is also a linear probability model, use a heteroskedasticity-robust standard error. (v) Now, estimate the structural equation by IV and compare the estimate of B1 with the OLS estimate. Again, you should obtain heteroskedasticity robust standard errors. (vi) Test the null hypothesis that p401k is in fact exogenous, using a heteroskedasticity-robust test

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

New Perspectives In Accounting Ethics

Authors: Emerald Group Publishing Limited

23rd Edition

1785608673, 9781785608674

More Books

Students also viewed these Accounting questions