All calculations must be made in STATA (excepting question 6): the student must

Question

All calculations must be made in STATA (excepting question 6): the student must provide the log and do-file code for each question (be organized!). [Saving and Income]. This question examines the determinants of household savings. The model is lsav_i = beta_0 + beta_1 linc_i + beta_2 size_i + beta_3 educ_i + beta_4 age_i + beta_5 black_i + elementof_i you can find the definition of variables in the following link WAGE1.DES and the dataset can be downloaded from the following webpage DATASET (SAVING data) (a) Do the following using STATA commands: i. Compute the natural log of savings, tag or name this variable as "lsav". ii. Compute the natural log of savings, tag or name this variable as ''line". iii. Drop the variable called ''cons" from this dataset. iv. Plot in a same graph the prediction or forecast, the actual value of savings and the income for each household. (b) Run the model specified in (1) and do the following: i. Report diagnosis and treatment in the presence of non-spherical disturbances. ii. How do you interpret the OLS estimate of beta_1 in economic and statistical terms?. iii. Why should we control for another variables as size, educ, age and black? iv. What is the prediction of household savings for a family with total income equal to 9185 dollars, number of members equal to 4, years of education and age of the household head equal to 5 and 30 respectively, also we know that the head of this family is white.

Explanation / Answer

The data set is not given , however to generate new variables the commands are

i) generate lsav = ln(savings)

ii)  generate linc = ln(income)

iii) drop cons

iv) graph twoway savings income

Please note that we can answer only 4 subparts of the question at a time , as per the answering guidelines

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