School of Economics and Finance Štµepána Lazarová

Queen Mary University of London Semester A, 2023/24

ECN224 ECONOMETRICS 1
Exercise set 1 Week 2
1. Suppose that a researcher, using data on class size (ST R, student-teacher
ratio) and average test scores from 100 third-grade classes (T estScore),
estimates the OLS regression,
d
T estScore = 520:4 5:82 ST R; R2 = 0:08; SER = 11:5;
(20:4) (2:21)

where the numbers in parentheses are the standard errors of the coef-
…cient estimates.

(a) A classroom has 22 students. What is the regression’s prediction

for that classroom’s average test score?
(b) Last year a classroom had 19 students, and this year it has 23
students. What is the regression’s prediction for the change in
the classroom average test score?
(c) The sample average class size across the 100 classrooms is 21.4.
What is the sample average of the test scores across the 100 class-
rooms? (Hint: Review the formulas for the OLS estimators.)
(d) What is the sample standard deviation of test scores across the 100
classrooms? (Hint: Review the formulas for the R2 and SER.)

2. (R) Load and examine the data caschool.csv. The data set caschool.csv
contains data for a random sample of California school districts in 1999.

(a) Create the scatterplot that relates the log of average income to the
student-teacher ratio.
(b) Find the average test score for districts where the student-teacher
ratio is below the mean and for districts where the student-teacher
ratio is above the mean
(c) Create a dummy variable called “highstr” that equals 0 if the
student-teacher ratio is below the mean and equals 1 if the student-
teacher ratio is above the mean

1
 (d) Repeat part (a) using this dummy.

3. (R) Load and examine the data LAwages.csv. The data set LAwages.csv
contains information on 820 workers from Los Angeles who have be-
tween 10 and 15 years of work experience. The data set is taken from
the 1990 US Census of Population.

(a) Plot a histogram for wage. Do you see some observations that
seem to be “outliers”(i.e., extreme observations that are far from
other observations)? How many observations are above $100k and
what are their values? Drop these observations.
(b) Create a new dummy variable called “other”that takes the value
1 if a person is neither black nor hispanic, and is 0 otherwise. Do
the number of blacks, hispanics, and others add up to the total
number of observations, i.e., are these groups exclusive? Drop
observations that belong to several groups.
(c) What is the expected wage of young workers in LA? What is
the conditional expectation of wages given that a person is fe-
male/male and black/hispanic/other?
(d) What is the variance of wages? What is the conditional variance
of wages by gender?
(e) Plot a histogram of the distribution of wages by gender, i.e., the
conditional distribution of wages given that the worker is female
along with the conditional distribution of wages given that the
worker is male.