Is the following statement True, False or Uncertain. You will need to justify yo

Question

Is the following statement True, False or Uncertain. You will need to justify your answer.

Researchers estimating a wage equation with a sample of adult males, suspect a structural break between wages and age around age 55. To investigate this issue they estimate the following model and test H0: B3=B2=0 :

log(wage)= B0 + B2wage + B3old.age + controls + u

where wage is weekly wage, age is age in years and old is a dummy variable equal to one if they are 55 or more and zero otherwise. The usual F test of H0 is likely to be adversely affected if there are differences in the variability of wages for those less than 55 compared to those greater than 55.

Explanation / Answer

The given statement is True.

To evaluate a hypothesis which involves multiple parameters,the F-test is used to determine that any of the independent variables dont have the predictive power.

Therefore,in case,the independent variables have variability,the H0 hypothesis would be affected.

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