# In studying the purchase of durable goods Y (Y =

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In studying the purchase of durable goods Y (Y = 1 if purchased, Y = 0
if no purchase) as a function of several variables for a total of 762 house-
holds, Janet A. Fisher obtained the following LPM results:
Explanatory variable
Coefficient
Standard error
Constant
0.1411
1957 disposable income, X,
(Disposable income = X,)2, X2
Checking accounts, X3
Savings accounts, X4
U.S. Savings Bonds, X5
Housing status: rent, X6
Housing status: own, X7
Monthly rent, X8
Monthly mortgage payments, Xg
Personal noninstallment debt, X10
Age, X11
Age squared, X12
Marital status, X13 (1 = married)
Number of children, X14
(Number of children = X14)2, X15
Purchase plans, X16 (1 = planned; 0 otherwise)
0.0251
0.0118
-0.0004
0.0004
-0.0051
0.0108
0.0013
0.0047
-0.0079
0.0067
0.0937
0.0712
-0.0469
0.0136
-0.7540
1.0983
0.5162
-0.9809
-0.0367
0.0326
0.0046
0.0084
-0.0001
0.0001
0.1760
0.0501
0.0398
0.0358
-0.0036
0.0072
0.1760
0.0384
R? = 0.1336
Notes: All financial variables are in thousands of dollars.
Housing status: Rent (1 if rents; 0 otherwise)
Housing status: Own (1 if owns; O otherwise)
Source: Janet A. Fisher, "An Analysis of Consumer Good Expenditure," The Review of Economics
and Statistics, vol. 64, no. 1, Table 1, 1962, p. 67.
a. Comment generally on the fit of the equation.
b. How would you interpret the coefficient of -0.0051 attached to
checking account variable? How would you rationalize the negative
sign for this variable?
c. What is the rationale behind introducing the age-squared and number
of children-squared variables? Why is the sign negative in both cases?
d. Assuming values of zero for all but the income variable, find out the
conditional probability of a household whose income is $20,000 pur-
chasing a durable good.
e. Estimate the conditional probability of owning durable good(s), given:
X1 = $15,000, X3 = $3000, X4 = $5000, X6 = 0, X7 = 1, Xg = $500, X9 =
$300, X10 = 0, X11 = 35, X13 = 1, X14 = 2, X16 = 0.