Question: Use the 1982 data on earnings used in Chapter 4, and provided on the Springer web site as EARN.ASC. Consider the two competing non-nested models

Use the 1982 data on earnings used in Chapter 4, and provided on the Springer web site as EARN.ASC. Consider the two competing non-nested models H0; log(wage) = β0 + β1ED + β2EXP + β3EXP2 + β4WKS

+β5MS + β6FEM + β7BLK + β8UNION + u H1; log(wage) = γ0 + γ1ED + γ2EXP + γ3EXP2 + γ4WKS

+γ5OCC + γ6SOUTH + γ7SMSA + γ8IND +

Compute:

(a) The Davidson and MacKinnon (1981) J-test for H0 versus H1.

(b) The Fisher and McAleer (1981) JA-test for H0 versus H1.

(c) Reverse the roles of H0 and H1 and repeat parts

(a) and (b).

(d) Both H0 and H1 can be artificially nested in the model used in Chapter 4. Using the Ftest given in (8.62), test for H0 versus this augmented model. Repeat for H1 versus this augmented model. What do you conclude?

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