econ483lab04endog

# econ483lab04endog - Econ 483 Computer Exercise 4 Data are...

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Econ 483. Computer Exercise 4 Data are on the Catalyst Discussion Board (check myUW). Name: Exercise A. endogenous explanatory variables with known data generating process 1. Download dgpendog.dta and open it by using use command. How the sample was generated is as follows. The original data had 6 variables: V 1 , V 2 , V 3 , V 4 , V 5 , V 6 . The V variables are realized numbers from independent and identically distributed normal with expectation zero and variance one. In other words, E [ V m ] = 0 and V ar [ V m ] = 1 for m = 1 ; 2 ; :::; 6 . Also, Cov [ V l ; V m ] = 0 for l 6 = m . The current data has X 1 = V 1 + V 5 , X 2 = V 2 + V 5 + V 6 , and U = V 6 . In addition, Z 1 = V 2 + V 3 and Z 2 = V 2 + V 4 . Finally, Generate Y = & 0 + 1 X 1 + 2 X 2 + U where & 0 = 2 : 8 , 1 = 4 : 2 , and 2 = 3 : 2 . (1) Calculate Cov [ X 1 ; U ] and Cov [ X 2 ; U ] . (2) Calculate Cov [ X 2 ; Z 1 ] and Cov [ X 2 ; Z 2 ] . Also, calculate Cov [ U; Z 1 ] and Cov [ U; Z 2 ] . (3) We estimate Y i = ± 0 + ± 1 X 1 i + ± 2 X 2 i + U i . In this regression model, do you have any endogenous (right hand side) variables? Do you have any exogenous (right hand side) variables? (4) Estimate the above model and test

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econ483lab04endog - Econ 483 Computer Exercise 4 Data are...

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