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Lecture 31

ECON 2209 Lecture 31: 12April_Econstats_Karagodsky

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ECON 2209

EconStats Notes 10 April 2017 What does ; etc. in the interaction model mean? 1 2 W high level of education there is less income discrimination because they are working similar jobs. ^ ^ ^ wa^ge = ^ + 1edu + 2emale + e3uXfemale here refers to the amount wage increases if education goes up. 1 Female: binarydummy variable. In the picture we see that males and females start at lower wages but there is higher marginal benet to them going to college. Predicted wage for females: wa^ge = ^ + 1edu + 2 e3ucation wa^gem = ^ + 1edu This means that the starting wage for men is given by ^ and the starting wage ^ ^ for females is given by^ + 2and the dierence is equal to 2. Perfect Multicollinearity in this case, perfect is bad say the price of a house is: prici = + 1sqft: + 2sqm + i regress price of a house on square feet and square meters. Issue: square fee and square meters are two measures of similar things. you dont want a relationship between two variables Rules, can I express one variable in terms of the other? if two variables are highly correlated leave on out of the regression because their coecients are meaningless anyway. 1
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