To test for discrimination in the mortgage loan market, a linear probability model can be used:
approve 0 1white other factors.
(i) If there is discrimination against minorities, and the appropriate factors have been controlled for, what is the sign of 1?
(ii) Regress approve on white and report the results in the usual form. Interpret the coefficient on white. Is it statistically significant? Is it practically large?
(iii) As controls, add the variables hrat, obrat, loanprc, unem, male, married, dep, sch, cosign, chist, pubrec, mortlat1, mortlat2, and vr. What happens to the coefficient on white? Is there still evidence of discrimination against nonwhites?
(iv) Now allow the effect of race to interact with the variable measuring other obligations as a percent of income (obrat). Is the interaction term significant?
(v) Using the model from part (iv), what is the effect of being white on the probability of approval when obrat 32, which is roughly the mean value in the sample? Obtain a 95% confidence interval for this effect.