31_SimultA_handout

# 31_SimultA_handout - Simultaneous equations I W-261 Y...

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Simultaneous equations - I Wooldridge 16 73-261 Y. Kryukov CMU, Tepper School of Business November-08, 2010 Y. Kryukov (CMU) 73-261: Simult. eq-s Nov-08 1 / 13

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Announcements Both exams and homeworks are being graded Verbal problems = lots of partial credit answers New HW will be posted this week, Quiz this Friday Final project will be doable after next week Will be posted by Thanksgiving Due during ±nals week (Dec-13) Y. Kryukov (CMU) 73-261: Simult. eq-s Nov-08 2 / 13
Multicollinearity: x 1 and x 2 correlated Problem: large s.e., unreliable ˆ β ±s Fix: drop or aggregate variables Heteroskedasticity: V ( u j x ) = h ( x ) Problem: s.e. invalid Fix: WLS or robust s.e.±s Endogeneity: x 1 correlated with u E.g. omitted x 2 (that is correlated with x 1 ) automatically becomes part of u . Problem: bias in ˆ β 1 Fix (IV/2SLS): replace x 1 with ˆ x 1 = ˆ γ 0 + ˆ γ 1 z Next: Special topics Y. Kryukov (CMU) 73-261: Simult. eq-s Nov-08 3 / 13

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Overview Topic 3.1 Simultaneous equations 2 and more equations E.g. Supply and Demand Simultaneity Bias Estimation by IV Indirect Least Squares (ILS) Y. Kryukov (CMU) 73-261: Simult. eq-s Nov-08 4 / 13
Example Supply: q = α 1 p + z 1 β

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31_SimultA_handout - Simultaneous equations I W-261 Y...

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