THE UNIVERSITY OF MELBOURNE
DEPARTMENT OF ECONOMICS
SEMESTER 2 Practice ASSESSMENT 2021
ECOM30003/ECOM90003: Applied Microeconometric Modelling
Time Allowed: 60 minutes
Reading Time: 10 minutes
This is a practice exam for ECOM30003/ECOM90003. Is is about one third of the length of the actual
exam.
It consists of a multiple choice part worth 6 marks and a long answer part worth 25 marks.
The Multiple Choice section of the exam can be accessed from the quiz page of Canvas.
This exam paper contains the questions for the long answer part of the exam.
Question 1 is worth 25 marks
ANSWER ALL QUESTIONS.
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Question 1. This question is worth 25 marks
Consider the following empirical model used to study wages among those over the age of 60:
lnwagei = β0 + β1yosi + β2expi + β3exp2i + β4femi + β4marriedi + i
where lnwagei is the log of the hourly wage of person i; yosi is years of schooling of person
i; expi and exp2i are years of work experience, and the square of years of work experience, of
person i; femi is an indicator equal to 1 if person i identifies as female; and marriedi is an
indicator equal to one if person i is married or co-habitating. You also have information on the
number of grandchildren under the age of 6 that person i has.
(a) [3 marks] Assume that the above model is correctly specified that you have data on a
random sample of people aged over the age of 60. Assume that years of schooling, work
experience and marital and co-habitation status can be treated as exogenous. Explain why
you might be concerned that estimating this model using a sample of employed individuals
aged 60 years or older using OLS may not produce unbiased estimates of the coefficients in
the model?
(b) [10 marks] Is there an econometric model that addresses the potential issue that you raised
above? If yes, then describe this model in detail. Include the equations or equations that
you would estimate, including the variables entering each equation, and the full set of
identifying assumptions.
(c) [5 marks]Provide a justification for the exclusion restriction that you would use to identify
this econometric model, given the data available. Can the exclusion restriction be tested?
(d) [5 marks] Using the model descried on part(b), explain how you would test whether there
is statistically significant evidence of the issue that you identified in part (a)?
(e) [2 marks] Under what circumstances are the standard errors valid for conducting the test
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you described in part (d)?
END OF EXAM
Please ensure that you have completed the multiple choice com-
ponent of this exam. It is located under the quizzes tab.
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