Question

In his study on the labor hours spent by the FDIC (Federal deposit insurance Corporation) on 91 bank examinations, R.J. Miller estimated the following function.

lnY=2.41+0.3674lnX1+0.2217lnx2+0.0803lnx3-0.1755D1+0.2799D2+0.5634D3-0.2572D4

     (0.55)     (0.0477)       (0.0628)      (0.0287)      (0.2905)    (0.1044)     (0.1657)     (0.0787)

R2=0.766

Where Y= FDIC examiner labor hours

            X1= Total assets of bank, x2 total number of offices in bank, x3 ratio of classified loans to total loan for bank . D1=1 if management rating was good D2=1 if management rating was fair D3=1 if management rating was satisfactory D4=1 if examination was conducted jointly with the state.

1. Interpret the results
2. Interpret the dummy variables
3. Which of the parameters from the estimated regression are statistically significant at 5% significance level?   

Answer 1

Interpretation

R-square=0.766 which is 76.6% implies that 76.6% variation in FDIC examiner labor hours can be explained by Total assets of bank, total number of offices in bank and ratio of classified loans to total loan for bank while the remaining 23.4% can be attributed to other factors. Also for every 1 unit increase in FDIC examiner labor hours, total assets of bank will increase by 0.367, total number of offices in bank will increase by 0.221 and ratio of classified loans to total loan for bank will increase by 0.0803.

B Non of the dummy variables was statistically significant because there corresponding P-values are greater than 0.05

C. X1 P-value=0.0477 which is less than 0.05 and that means X1 is statistically significant to the fitted model, also X3, P-value=0.0287 which is less than 0.05 which means that X3 is statistically significant to the model at 5% significant level