4 Empirical Application [25 pts]

To answer this question you are required to use the statistical software Stata. Make sure to create a do file with

your code, an automated log file of your answers from that code, and write down in a separate document your

answers. You are required to submit all three files (i.e., do file, log file, and Word document) before the due date.

Load the same dataset nbasal using the bcuse command.

4.1 Simple versus multiple regression model [15 pts]

Estimate coefficients ßo and 3₁ using the OLS estimator of a model that relates the marriage status (marr;) with

the annual salary in thousand of USD (wage;):

i. Which is the value of Bo? How do you (quantitatively) interpret this value? [2 pts]

ii. Which is the value of ₁? How do you (quantitatively) interpret this value? [2 pts]

iii. Answer i. and ii. defining the dependent variable as log(wage;) [3 pts]

iv. From an economic point of view, is ₁ capturing a causal effect of z on y or purely a correlation? Why?

[4 pts]

v. Run the following regression,

4.2 Multiple regression model [10 pts]

Estimate coefficients Bo, B₁, B2, and 3 using the OLS estimator of a model that relates the position of the player

(guardi, center;, and forward;) with the annual salary in thousand of USD (wage;):

wage; = Bo + Biguard; + ß₂center; + B3 forward; +u;.

i. Which is the value of 8₁? How do you explain this result? Which assumption are we violating in this model?

[5 pts]

ii. How can you solve the issue in i.? How can I know the average (predicted) wage of a guard, a center, and a

forward? [5 pts]