In his study on the labor hours spent by the FDIC (Federal Deposit Insurance Corporation) on 91 bank examinations, R. J. Miller estimated the following function:

Where

Y = FDIC examiner labor hours

X₁ = total assets of bank

X₂ = total number of offices in bank

X₃ = ratio of classified loans to total loans for bank

D₁ = 1 if management rating was €œgood€

D₂ = 1 if management rating was €œfair€

D₃ = 1 if management rating was €œsatisfactory€

D₄ = 1 if examination was conducted jointly with the state

The figures in parentheses are the estimated standard errors.

a. Interpret these results.

b. Is there any problem in interpreting the dummy variables in this model since Y is in the log form?

c. How would you interpret the dummy coefficients?

Transcribed Image Text:

În Y = 2.41 + 0.3674 In X1 + 0.2217 In X2 + 0.0803 In X3 (0.0287) (0.0477) (0.0628) -0.1755D (0.2905) + 0.2799D2 + 0.5634D3 – 0.2572D4 (0.0787) R? = 0.766 (0.1657) (0.1044)