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Unformatted text preview: Econ 103 UCLA, Spring 2011 Problem Set 6 Due: Tuesday, May 31 in hardcopy at the beginning of class Note: Please attach the Homework Cover Page from Classweb to the front of your home- work. Part 1: True or False and explain brie y why. 1. Estimation of the IV regression model requires exact identi cation or overidenti cation. 2. Two Stage Least Squares is calculated as follows: In the rst stage Y is regressed on the exogenous variables only. The predicted value of Y is then regressed on the instrumental variables. 3. The rule-of-thumb for checking for weak instruments is as follows: for the case of a single endogenous regressor, the rst stage F must be statistically signi cant to indicate a strong instrument. 4. The J-statistic tells you if the instruments are exogenous. 5. The distinction between endogenous and exogenous variables is that exogenous variables are determined inside the model and endogenous variables are determined outside the model. 6. The two conditions for a valid instrument are Corr ( Z i ,X i ) = 0 and Corr ( Z i ,u i ) = 0 . 7. Instrument relevance means that the instrument is one of the determinants of the dependent variable....
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