econ 140 10 - ECONOMICS 140 Professor Enrico Moretti...

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ECONOMICS 140 Professor Enrico Moretti 4/12/2010 Lecture 10 ASUC Lecture Notes Online is the only authorized note-taking service at UC Berkeley. Do not share, copy or illegally distribute (electronically or otherwise) these notes. Our student-run program depends on your individual subscription for its continued existence. These notes are copyrighted by the University of California and are for your personal use only. D O N O T C O P Y Sharing or copying these notes is illegal and could end note taking for this course. ANNOUNCEMENTS Today, we will finish chapter 13. You should skip 13.6.1. Then we will cover chapter 18, which is related to chapter 13. Then we might start on chapter 14, but I doubt it will happen. On April 19 th , we will finish chapter 14 and cover 16. To refresh your memory, chapter 14 is the current chapter and it covers four of the problems with regression models. Chapter 18 proposes some solutions to fix that. You should skip 18.5. Chapter 16 covers two more problems with regression models. We will skip chapter 15 and 17. Chapter 15 is a fairly technical treatment of a system of equations. I don’t think it will be a useful chapter for most people and covers far more material then what you will need. Chapter 17 is about the time series of econometrics. For example, stock crisis and GDP where variables are linked to the passing of time. If anyone is interested in either of these two topics, I will be happy to further discuss this with you during office hours. On April 26 th , we will have practice problems in class. I will post them in advance and I encourage you to solve them before class. The week of April 26 th , I will have extra office hours. There will still be section this week. There is no lecture the week of May 3 rd , but there will still be sections. I will have extra office hours this week. I will post a problem set tonight and it will be due on April 19 th . I will send out an email about the exact dates and times of the extra office hours. LECTURE Recap of Last Lecture Last lecture, we left off in chapter 13 talking about measurement error. Think about the model where y= β 0 + β 1 x 1 * + Ε x 1 * is unobserved x 1 = x 1 * + U We made some assumptions about U last week. What are they? 1. The mean of U is zero. E[U] = 0 2. x 1 * and U are uncorrelated. E[x 1 * U]= 0 3. E[U E]= 0 y= β 0 + β 1 (x 1 –U) + Ε y= β 0 + β 1 x 1 β 1 U) + Ε where - β 1 U + E are the residual E[ β 1 – (b 12 β 1 ) . If β 1 is positive, then the attenuation bias is negative. Student: What does the E[x 1 * U]= 0 mean? This is the covariance of x 1 * and U. What it means in words is that the measurement error has nothing to do with x 1 . Let’s look at an example with schooling. I want to find the relationship between schooling and wages so I call up different individuals and ask them. Some will under-report
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Economics 140 ASUC Lecture Notes Online: Approved by the UC Board of Regents 4/12/2010 D O N O T C O P Y Sharing or copying these notes is illegal and could end note taking for this course.
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econ 140 10 - ECONOMICS 140 Professor Enrico Moretti...

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