Use the data in MINWAGE.RAW for this exercise, focusing on sector 232.(i) Estimate the equ...

Use the data in MINWAGE.RAW for this exercise, focusing on sector 232.

(i) Estimate the equation

and test the errors for AR(1) serial correlation. Does it matter whether you assume gmwaget and gcpit are strictly exogenous? What do you conclude overall?

(ii) Obtain the Newey-West standard error for the OLS estimates in part (i), using a lag of 12. How do the Newey-West standard errors compare to the usual OLS standard errors?

(iii) Now obtain the heteroskedasticity-robust standard errors for OLS, and compare them with the usual standard errors and the Newey-West standard errors. Does it appear that serial correlation or heteroskedasticity is more of a problem in this application?

(iv) Use the Breusch-Pagan test in the original equation to verify that the errors exhibit strong heteroskedasticity.

(v) Add lags 1 through 12 of gmwage to the equation in part (i). Obtain the p-value for the joint F test for lags 1 through 12, and compare it with the p-value for the heteroskedasticity-robust test. How does adjusting for heteroskedasticity affect the significance of the lags?

(vi) Obtain the p-value for the joint significance test in part (v) using the Newey-West approach. What do you conclude now?

(vii) If you leave out the lags of gmwage, is the estimate of the long-run propsensity much different?