Stock and Watson - Introduction to Econometrics - Solutions

PART TWO Solutions to Empirical Exercises

Chapter 3
Review of Statistics
Solutions to Empirical Exercises
1. (a) Average Hourly Earnings, Nominal $’s Mean AHE1992 AHE2004 AHE2004 − AHE1992 (b) Average Hourly Earnings, Real $2004 Mean AHE1992 AHE2004 AHE2004 − AHE1992 15.66 16.77 Difference 1.11 SE(Mean) 0.086 0.098 SE(Difference) 0.130 95% Confidence Interval 15.49−15.82 16.58−16.96 95% Confidence Interval 0.85−1.37 11.63 16.77 Difference 5.14 SE(Mean) 0.064 0.098 SE(Difference) 0.117 95% Confidence Interval 11.50−11.75 16.58−16.96 95% Confidence Interval 4.91−5.37

(c) The results from part (b) adjust for changes in purchasing power. These results should be used. (d) Average Hourly Earnings in 2004 Mean High School College College−High School 13.81 20.31 Difference 6.50 SE(Mean) 0.102 0.158 SE(Difference) 0.188 95% Confidence Interval 13.61−14.01 20.00−20.62 95% Confidence Interval 6.13−6.87

Solutions to Empirical Exercises in Chapter 3

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(e)
Average Hourly Earnings in 1992 (in $2004)

Mean High School College College−High School (f) 13.48 19.07 Difference 5.59

SE(Mean) 0.091 0.148 SE(Difference) 0.173

95% Confidence Interval 13.30−13.65 18.78−19.36 95% Confidence Interval 5.25−5.93

Average Hourly Earnings in 2004 Mean AHEHS,2004 − AHEHS,1992 AHECol,2004 − AHECol,1992 Col–HS Gap (1992) Col–HS Gap (2004) Gap2004 − Gap1992 0.33 1.24 SE(Mean) 0.137 0.217 95% Confidence Interval 0.06−0.60 0.82−1.66

5.59 6.50 Difference 0.91

0.173 0.188 SE(Difference) 0.256

5.25−5.93 6.13−6.87 95% Confidence Interval 0.41−1.41

Wages of high school graduates increased by an estimated 0.33 dollars per hour (with a 95% confidence interval of 0.06 − 0.60); Wages of college graduates increased by an estimated 1.24 dollars per hour (with a 95% confidence interval of 0.82 − 1.66). The College − High School gap increased by an estimated 0.91 dollars per hour. (g) Gender Gap in Earnings for High School Graduates Year 1992 2004

Ym
14.57 14.88