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Unformatted text preview: Economics 382 Instructor: Jing Sun Homework #7 This homework is due on Tuesday April 8 th at the time of the class. 1. (Complete using calculator) Wooldridge Chapter 3, problem 3.10, page 114. Answer: 3.10 (i) Because 1 x is highly correlated with 2 x and 3 x , and these latter variables have large partial effects on y , the simple and multiple regression coefficients on 1 x can differ by large amounts. We have not done this case explicitly, but given equation (3.46) and the discussion with a single omitted variable, the intuition is pretty straightforward. (ii) Here we would expect 1 % and 1 to be similar (subject, of course, to what we mean by almost uncorrelated). The amount of correlation between 2 x and 3 x does not directly effect the multiple regression estimate on 1 x if 1 x is essentially uncorrelated with 2 x and 3 x . (iii) In this case we are (unnecessarily) introducing multicollinearity into the regression: 2 x and 3 x have small partial effects on y and yet...
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This note was uploaded on 06/23/2008 for the course ECON 382 taught by Professor Sun during the Spring '08 term at CUNY Queens.
- Spring '08