Econometrics
Economics 200
First Exam
Fall 2003
Click here to retrieve a database that contains 1990 information on the salaries in thousands of dollars of 177 chief executives (CEOs) and the profits in millions of dollars of the firms they lead.
Type the following command in Stata's command window to obtain a description of the data
describe
You answers to the following questions should be as short and concise as possible.
Descriptive Statistics
1. Using descriptive statistics and graphics describe: (1) the salaries of the 177 chief executives and (2) the profits of the firms they lead.
You may want to use a table like the one hyperlinked here or a table that you constructed before coming to class.
2. Identify any outliers in the data set.
Population Model
The data in the database can be used to estimate the way in which firm profits affect the salaries of CEOs. A population model linking firm profits to CEO salaries is:
3. What does this model imply about the relationship between CEO salary and profits?
4. Why does the
population model in equation (1) contain
?
Regression
Estimate the population model using ordinary least squares (ols) and assuming that the stochastic errors are homoskedastic.
5. Write the equation for the ols regressions that you have just estimated
Estimate the population model using ols and assuming that the stochastic errors are heteroskedastic.
Estimates of
6. Which set of
results (the results that assume homoskedasticity or the results that allow for
heteroskedasticity) do you believe provide better estimates of
? Explain your answer briefly.
7. Interpret
the ols estimate of that you believe is
best.
Estimates of
8. Which set of
results (the results that assume homoskedasticity or the results that allow for
heteroskedasticity) do you believe provide better estimates of
? Explain your answer briefly.
Inference
9. Using your
preferred estimate for and for
,what can you infer about
from your ols results? Explain how you
make your inferences (classical hypothesis testing, using a confidence interval
or using a p-value).
Presentation of Results
10. Briefly describe how you would present your results to the Security and Exchange Commission (SEC) which has asked you to tell them how firm profits affect CEO salaries.
11. Fill in a table that presents your ols results. This table may be one that you created prior to class or the table hyperlinked here.
(c) Ann Dryden Witte 2003