# 7807

R project

Due by 5/15

There are two sets of questions. Make sure to present your estimation results using the R

package stargazer().

Data

The data set 401ksubs.RData contains information on net financial wealth (nettfa), age of

survey respondent (age), annual family income (inv), family size (fsize), a binary variable

for eligibility in a 401(k) plan (e401k), participation in certain pension plans for people in

the United States and other variables. The wealth and income variables are both recorded in

thousands of dollars.

Part 1

**Use only the data for single-person households, i.e., fsize=1 to answer the questions in

Part 1.

1. How many single-person households are there in the data set?

2. Use OLS to estimate the model

nettf ai = ß0 + ß1inci + ß2agei + ui (1)

and interpret the slope coefficients. Is there any sign contrary to your expectation?

3. Does the intercept from the regression have an interesting meaning? Explain.

4. Find the p-value for the test H0 : ß2 = 1 against H1 : ß2

1% significance level?

5. What is the youngest age of people in this sample? How many people are at that age?

6. Use OLS to estimate the the model

nettf ai = ß0 + ß1inci + ß2agei + ß3age2

i + ui

. (2)

Are you concerned that the coefficient on age is negative? Explain.

7. Because the youngest people in the sample are 25, it makes sense to think that, for

a given level of income, the lowest average amount of net total financial assets is at

age 25. Recall that the partial effect of age on nettfa is ß2 + 2ß3age, so the partial

effect at age 25 is ß2 + 2ß3(25) = ß2 + 50ß3; call this ?2. Find ?b2 and obtain the

two-sided p-value for testing H0 : ?2 = 0. You should conclude that ?b2 is small and

very statistically insignificant. [Hint: One way to do this is to estimate the model

nettf a = a0 + ß1inc + ?2age + ß3(age – 25)2 + u, where the intercept, a0, is different

from ß0. There are other ways, too.]

8. Because the evidence against H0 : ?2 = 0 is very weak, set it to zero an estimate the

model

nettf ai = a0 + ß1inci + ß3(agei – 25)2 + ui

. (3)

In terms of goodness-of-fit, does this model fit better than that the model in (2)?

9. For the estimated equation in (3), set inc = 30 and graph the relationship between

nettfa and age, but only for age = 25. Describe your finding.

Attachments:

Project.pdf401ksubs–1-.zip

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