6 Now estimate the effect of two countries having a common c

6. Now estimate the effect of two countries having a common currency. This can be done by esti- mating a regression where currencyi is a dummy variable that takes a value of 1 if countries i and j share a common currency. Present standard errors of each coefficient and the t-statistic to two decimal places. For each variable, is it significantly different from zero at the 95% level of certainty? Everything else equal, what is trade between two countries that do not have a common currency relative to two countries that do?

Solution

Standard errors

t-value

0.32

-98.72

0.01

162.45

0.01

125.84

0.02

-64.59

0.12

8.67

Yes each variable is significantly different from zero at 95% level of confidence

because the t-values are sufficiently large.

The countries those do not share same currency

Trade = 0 +1ln(Yi) + ln(Yj)

Standard errors	t-value
0.32	-98.72
0.01	162.45
0.01	125.84
0.02	-64.59
0.12	8.67
Yes each variable is significantly different from zero at 95% level of confidence
because the t-values are sufficiently large. The countries those do not share same currency Trade = 0 +1ln(Yi) + ln(Yj)