/* INTERACTIVE DUMMY VARIABLE IN EARNINGS EQUATION */

/* Load Data and Define Variables */

load path=c:\gauss35\classes\econ5340\data\;
load x[1001,12]=cps88.asc;
data = x[2:1001,.];

age = data[.,1];
age2 = age^2;
grade = data[.,3];
lnwage = data[.,6];
potexp = data[.,9];
married = data[.,5];
margrade = married.*grade;
nobs = rows(data);
constant = ones(nobs,1);

xmat = constant~age~age2~grade~married~margrade;
k = cols(xmat);

/* Least Squares Estimation */

urb = inv(xmat'*xmat)*(xmat'*lnwage);
print "estimated coefficient vector = " urb;

/* Estimated Linear Regression (Married=0) */

grade = seqa(8,0.01,nobs);
age = 28*ones(nobs,1);
age2 = (28^2)*ones(nobs,1);
constant = ones(nobs,1);
null = zeros(nobs,1);
margrade = grade.*null;
married = zeros(nobs,1);
xmat = constant~age~age2~grade~married~margrade;
lnwage0 = xmat*urb;

/* Estimated Linear Regression (Married=1) */

married = ones(nobs,1);
margrade = grade.*constant;
xmat = constant~age~age2~grade~married~margrade;
lnwage1 = xmat*urb;

/* Graph of the Estimated Linear Regression */

library pgraph;
graphset;
title("Predicted lnwage of Married and Unmarried Evaluated at Age=28");
xlabel("Grade");
ylabel("lnwage"); 
xy(grade,lnwage0~lnwage1);