{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

ProblemSet8Ans - ECON 3200 Introduction to Econometrics...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
ECON 3200 Introduction to Econometrics Answers for Problem Set 8 Problem 1 (Wooldridge 15.1) 1. It has been fairly well established that socioeconomic status affects student performance. The error term u contains, among other things, family income, which has a positive effect on GPA and is also very likely to be correlated with PC ownership. 2. Families with higher incomes can afford to buy computers for their children. Therefore, family income certainly satisfies the second requirement for an instrumental variable: it is correlated with the endogenous explanatory variable [see (15.5) with x = PC and z = faminc ]. But as we suggested in part (i), faminc has a positive affect on GPA , so the first requirement for a good IV, (15.4), fails for faminc . If we had faminc we would include it as an explanatory variable in the equation; if it is the only important omitted variable correlated with PC , we could then estimate the expanded equation by OLS. 3. This is a natural experiment that affects whether or not some students own computers. Some students who buy computers when given the grant would not have without the grant. (Students who did not receive the grants might still own computers.) Define a dummy variable, grant , equal to one if the student received a grant, and zero otherwise.
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern