6. Now estimate the effect of two countries having a common currency. This can b

Question

6. Now estimate the effect of two countries having a common currency. This can be done by esti- mating a regression where currencyi is a dummy variable that takes a value of 1 if countries i and j share a common currency. Present standard errors of each coefficient and the t-statistic to two decimal places. For each variable, is it significantly different from zero at the 95% level of certainty? Everything else equal, what is trade between two countries that do not have a common currency relative to two countries that do?

Explanation / Answer

Standard errors

t-value

0.32

-98.72

0.01

162.45

0.01

125.84

0.02

-64.59

0.12

8.67

Yes each variable is significantly different from zero at 95% level of confidence

because the t-values are sufficiently large.

The countries those do not share same currency

Trade = 0 +1ln(Yi) + ln(Yj)

Standard errors

t-value

0.32

-98.72

0.01

162.45

0.01

125.84

0.02

-64.59

0.12

8.67

Yes each variable is significantly different from zero at 95% level of confidence

because the t-values are sufficiently large.

The countries those do not share same currency

Trade = 0 +1ln(Yi) + ln(Yj)

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