Use the data in EZANDERS for this exercise. The data are on monthly unemployment claims in Anderson Township in Indiana, from January 1980 through November 1988. In 1984, an enterprise zone (EZ) was located in Anderson (as well as other cities in Indiana). [See Papke (1994) for details.]

(i) Regress log(uclms) on a linear time trend and 11 monthly dummy variables. What was the overall trend in unemployment claims over this period? (Interpret the coefficient on the time trend.) Is there evidence of seasonality in unemployment claims?

(ii) Add ez, a dummy variable equal to one in the months Anderson had an EZ, to the regression in part (i). Does having the enterprise zone seem to decrease unemployment claims? By how much? [You should use formula (7.10) from Chapter 7.]

(iii) What assumptions do you need to make to attribute the effect in part (ii) to the creation of an EZ?

C6 Use the data in FERTIL3 for this exercise.

(i) Regress gfrt on t and t 2

and save the residuals. This gives a detrended gfrt

, say, gf

$

t

.

(ii) Regress gf

$

t on all of the variables in equation (10.35), including t and t 2

. Compare the R-squared with that from (10.35). What do you conclude?

(iii) Reestimate equation (10.35) but add t 3

to the equation. Is this additional term statistically significant?