HRSEMPit = [30 + 61D88t + 62D89t + B1GRANTit + [i2GRANTi,t-1 + eit
(i) Estimate the equation using fixed effects. How many firms are used in the FE estimation? How many total observations would be used if each firm had data
on all variables (in particular, HRSEMP) for all three years?
(ii) lnterpret the coefficient on GRANT and comment on its significance.
[31 INC + [i2HHSlZE + [i3EDUC + [i4AGE + e
where HHSIZE is household size, EDUC is years of education ofthe household head, and AGE is age
ofthe household head. Assume that E(e/INC, HHSIZE, EDUC, AGE) = 0.
(i) Suppose that the sample includes only families whose head is over
25 years old. lfwe use OLS on such a sample, do we get unbiased estimators ofthe Bj? Explain.
(ii) Now, suppose our sample includes only
we exclude from our sample families that save more than $25,000 per year. Does OLS produce consistent estimators ofthe Bj?
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