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Homework2 - Homework 2 ECO 7427 Prof Sarah Hamersma Due...

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Homework # 2 ECO 7427 Prof. Sarah Hamersma Due Wednesday Feb. 9, 2011 (in class) 1. For your data work this week, I would like you to do exercise 5.4 in Wooldridge (all parts). The data are available on the shared drive in the Economics department or on W ooldridge’s website at: http://www.msu.edu/~ec/faculty/wooldridge/book2.htm The paper you will replicate is Card 1995. It was published in a book, but there are copies of the working paper version online (NBER # 4483) for your reference. 2. We have discussed in detail the defining features of an instrumental variable. Another important kind of variable is a “proxy” variable, which you may also use when you are concerned about omitted variables. Please write me a description of the distinction between a proxy and an instrument. Specifically, tell me about differences in the assumptions required for each to be valid and differences in the type of situation in which it would be useful to use such a variable.
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