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Unformatted text preview: 386-2Problem Set #1Spring 2008Due April 9Exercise 1In this problem you are asked to write down an application you are interested in studying. Later inthe course you will be asked to follow up and perform the analysis. So keep your applicationrealistic. In particular, focus on either data from the text book or data that you can get otherwise. a.Suggest a question that you could answer using econometric methods. This question can bean economic question, a question from another discipline or any question that you want toknow the answer to.b.Write down an econometric model that would allow you to answer the question you proposein (a). What is the dependent variable? The independent variables? What is included in theerror term and why is the error term likely to satisfy the standard assumptions? How wouldyou use the model to answer the question?c.What data would you need to estimate the model? Where could you get these data?Exercise 2You estimate the model by OLS.. You are concerned that the regressor, , might becorrelated with the error term, . You decide to test this by the following procedure:(i) Regress on and obtain estimates of the coefficients.(ii) Use these estimates to compute the estimated residuals, .(iii) Compute the sample covariance between Xiand , given by where is the sample mean of and is the sample mean of ....
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This homework help was uploaded on 04/18/2008 for the course BIOL_SCI 164 taught by Professor Walsh during the Spring '08 term at Northwestern.
- Spring '08