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Problem Set 10

The document outlines Problem Set 1 for Econometrics 742, authored by Chris Taber, with a due date of February 8. It includes three problems that require students to verify regression results using different methods and data sets, focusing on multiple regression, instrumental variable estimation, and measurement error. Each problem specifies the tasks and methodologies to be employed for analysis and verification of econometric concepts.

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7 views2 pages

Problem Set 10

The document outlines Problem Set 1 for Econometrics 742, authored by Chris Taber, with a due date of February 8. It includes three problems that require students to verify regression results using different methods and data sets, focusing on multiple regression, instrumental variable estimation, and measurement error. Each problem specifies the tasks and methodologies to be employed for analysis and verification of econometric concepts.

Uploaded by

uditm
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Problem Set 1

Econometrics 742
Chris Taber
Due: Wed. Feb. 8

Problem 1. Take any data set you would like and verify the two part regression results (if
you google something like econometric data sets there are a lot to choose from). That
is think about a multiple regression which you can separate the independent variables
into to groups.
0 0
Yi = X1i β1 + X2i β2 + ui
Verify that you get exactly the same results for βb1 doing the two things:

a) A big multiple regression of Yi on (X1i , X2i ).


b) Two part regression where you first run Yi and X1i on X2i and take residuals and
then run the residuals from the Y regression on the residuals for the X regressions.
c) Now suppose that rather than the first set you just regressed Yi on X
f . (where Y
1i i
is the original data and X
f is the residuals). Does that give you the same result?
1i
Why or why not?

Problem 2. Again with any data set you would like and with any software you would like
think about the exactly identified IV problem. I would like you to produce the IV
estimate in four different ways and show they are numerically equivalent (I don’t care
whether the instrument is really uncorrelated with the residua):

a) IV, that is (Z 0 X)−1 Z 0 Y (you can use ivregress with the gmm option in stata)
b) Two staged least squares. That is first run the treatment variable on the instrument
and the X’s, form the predicted value, then run a regression of the outcome on
the predicted value and the other X’s.
c) Ratio of reduced form coefficients. Run the two reduced forms and take the ratio
of the coefficients on the Z.
d) Literally use
scov(Z,
e Ye )
α
b =
svar(Z,
e Te )

where the tildes mean residuals after regressing on X, scov means sample covari-
ance, and svar means sample variance.

Problem 3. Verify the measurment error result. That is I want you to use your statistical
package to contruct

• Ti to have whatever distribution you want (a uniform might be easy)


•
Yi = β0 + β1 Ti + ui
where ui is N (0, σu2 ). You can choose these parameters to be anything you want.
•

τ1i = Ti + ξi

where ξi is N (0, σξ2 )


•

τ2i = Ti + ηi

where ηi is N (0, ση2 )

Show that

a) If you run a regression of Yi on Ti you get something close to β1


b) If you run a regression of Yi on τ1i you get something close to

V ar(Ti )
β1
V ar(Ti ) + σξ2

c) Doing IV using τ2i as an instrument for τ1i gives an estimate close to β1

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