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*Billions of Drachmas at constant 1970 prices "•"Thousands of workers per year.

Source: I am indebted to George K. Zestos of Christopher Newport University, Virginia, for the data.

a. See if the Cobb-Douglas production function fits the data given in the table and interpret the results. What general conclusion do you draw?

b. Now consider the following model:

Output/labor = A( K/L)P eu where the regressand represents labor productivity and the regressor represents the capital labor ratio. What is the economic significance of such a relationship, if any? Estimate the parameters of this model and interpret your results.

7.23. Refer to Example 3.3 and the data given in Table 2.6. Now consider the following models:

a. ln (hwage ) = p1 + p2 ln (education ) + P3(ln education )2 + ui where ln = natural log. How would you interpret this model? Estimate this model, obtaining the usual statistics and comment on your results.

b. Now consider the following model:

ln (hwage) = p1 + p2 ln (education) + p3 ln (education2) + ui

CHAPTER SEVEN: MULTIPLE REGRESSION ANALYSIS: THE PROBLEM OF ESTIMATION 243

If you try to estimate this model, what problem(s) would you encounter? Try to estimate this model and see if your software package can estimate this model.

7.24. Monte Carlo experiment: Consider the following model:

You are told that 01 = 262, ft = -0.006, ft = -2.4, a2 = 42, and u ~ N(0, 42). Generate 10 sets of 64 observations on ui from the given normal distribution and use the 64 observations given in Table 6.4, where Y = CM, X2 = PGNP, and X3 = FLRto generate 10 sets of the estimated 0 coefficients (each set will have the three estimated parameters). Take the averages of each of the estimated 0 coefficients and relate them to the true values of these coefficients given above. What overall conclusion do you draw?

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