Lecture 14

Lecture 14 - 12-1LECTURE 14: INSTRUMENTAL VARIABLES...

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Unformatted text preview: 12-1LECTURE 14: INSTRUMENTAL VARIABLES (CONTINUED) Inference using TSLS In large samples, the sampling distribution of the TSLS estimator is normal Inference (hypothesis tests, confidence intervals) proceeds in the usual way Example: Cigarette demandln(cigarettesiQ) = + 1ln(cigarettesiP) + iPanel data: Annual cigarette consumption and average prices paid (including tax) 48 continental US states, 1985-1995 Proposed instrumental variable: Zi= general sales tax per pack in the state = SalesTaxiIs this a valid instrument? 1. Relevant? corr(SalesTaxi, ln(cigarettesiP))0? 2. Exogenous? corr(SalesTaxi, i) = 0? STATAEXAMPLE: CIGARETTE DEMAND, STAGE 1 Instrument = Z= rtaxso = general sales tax (real $/pack) 12-2X Z reg lravgprs rtaxso Regression Number of obs = 48 F( 1, 46) = 40.39 Prob > F = 0.0000 R-squared = 0.4710 Root MSE = .09394 ------------------------------------------------------------------------------ | Robust lravgprs | Coef. Std. Err. t P>|t| [95% Conf. Interval] [95% Conf....
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This note was uploaded on 03/20/2009 for the course ECON 103 taught by Professor Sandrablack during the Winter '07 term at UCLA.

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Lecture 14 - 12-1LECTURE 14: INSTRUMENTAL VARIABLES...

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