You are given the following model:
appr = b 0 + b1 loanprc + b 2atotinc +b 3 atotinc.^2sq. + b4obrat + b5pubrec + u,
4 5 2 b 0 b1 b 2 b 3 b b ,
– approve: =1 if loan is approved, and 0 if not.
– obrat: other obligations, % of total income
– pubrec: = 1 if filed for bankruptcy
– atotinc: Total monthly income
– loanprc: loan amount /purchase price
– atotinc.^2sq. = atotinc* atotinc
a. What sign would you expect from each partial slope coefficient in the model above? Justify your answers.
From the estimation of model above, one can obtain the following:
appr = 1.2-0.189loanprc +1.7e^-06atotinc-4.3e^-11atotinc^2-0.0054obrat-0.28 pubrec
(0.04) (0.038) (2.7e^ -06 ) (5.6e^ -11 ) (0.00088) (0.0358)
R^2= 0.1087 n =1989
b. Interpret the coefficients of pubrec, and of loanprc.
c. How do you explain the signs of atotinc and atotinc^2 ?