Use the data in RENTAL.RAW for this exercise. The data for the years 1980 and 1990 include rental prices and other variables for college towns. The idea is to see whether a stronger presence of students affects rental rates. The unobserved effects model is
Log(rentit) = (0 + (0y90t + (1 log (popit) + (3 (log) (acginc it) pctstuit + ai + uit'
Where pop is city population, avginc is average income, and pctstu is student population as a percentage of city population (during the school year).
(i) Estimate the equation by pooled OLS and report the results in standard form.
What do you make of the estimate on the 1990 dummy variable? What do you get for pctstu?
(ii) Are the standard errors you report in part (i) valid? Explain.
(iii) Now, difference the equation and estimate by OLS. Compare your estimate of (pctstu with that from part (ii). Does the relative size of the student population appear to affect rental prices?
(iv) Obtain the heteroskedasticity-robust standard errors for the first-differenced equation in part (iii). Does this change your conclusions?