a. Find one scholarly empirical article from an economics journal with a study similar to this assignment and summarize it (its expectations, methodology and equation and results in a paragraph as much as you can make sense of it).
b. Start with the data set you tabulated for the previous assignment—‘for U.S. states find time-series cross-sectional data for the most recent 30 years on poverty rate, state unemployment rate, and transfer payments. Raise the number of states at least to 35 (for d.f. issues). Add two variables state inflation rate (state CPI is fine) and the percentage of college graduation completion rate in the state.
a. Set expectations and hypothesis testing—again the poverty rate being the dependent variable and four independent variables (including both new and the previously used variables).
b. Set hypotheses, run two regressions: one with all the variables–poverty rate being the dependent variable–and another without the state inflation rate (now you have three regressions including the one from the previous assignment.) properly report results (based on convention)
c. Interpret the results of the full equation based on expectations (based on a theoretical/literature backing), and on statistical grounds (robustness of individual estimated coefficients of the parameters and overall fitness also see if there is possible of multicollinearity).
d. If the base for comparisons is the equation with three dependent variables, establish if there is a reason to believe your original equation is understated–with an (an) omitted variable(s). Also establish if the equation with four independent variables might have an irrelevant variable.
e. If you were to correct for an omitted variable, how would you establish the ‘expected bias?’
f. Visually decide (with a scatter diagram if one of the variables may have a nonlinear relationship with the dependent variable—in reality this is done with all of the independent variables)?
Make sure all work is supported (and data provided) with a print out (all in an appendix).
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