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Heteroskedasticity and autocorrelation problems

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The data set education.dta contains data on the years of education of a random sample of 718 Americans, as well as the same information for both of their parents. It is likely that parents' achievements have some predictive power for their children's outcomes, as a result of both a hereditary component of intelligence and the possibility that higher educated parents stimulate their children more to do well at school. Thus, we consider the model educi = 1 + 2meduci + 3feduci +ui.

Question 1: We will ignore any heteroskedasticity and autocorrelation problems in the remainder of this question. However, discuss whether it is likely that these problems are present in our model.

Question 2: beta2 and beta3 are allowed to be different. Now, what would the restriction beta2 + beta3 = 1 mean, in economic terms?

Reference no: EM131070021

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