Exercise 7

# Exercise 7 - University of California Department of...

This preview shows pages 1–2. Sign up to view the full content.

University of California D. Steigerwald Department of Economics Economics 241B Exercise 7 1. Consider the population model (in deviation-from-means form) , * t t t U X Y in which * t X is latent. The observed regressor is , * t t t V X X in which t V is independent of t U . Further, we know that t V and t U are symmetrically distributed about 0. a. Detail why, in the presence of measurement error, β is not identified. b. Let med(X) be the median of n X X , , 1 and define 1 t Z if X med X t 1 t Z if X med X t . In certain texts, t Z has been advanced as a valid instrument. Is t Z a valid instrument? c. Can the assumption that t V is symmetrically distributed about 0 restore identification? If so, construct the corresponding estimator of β . 2. Consider the linear regression model (1) Y t =  X t + U t , t = 1,...,n where X t is a ( k 1 ) vector of explanatory variables, is ( k 1 ) vector of coefficients to be estimated and U t is a homoskedastic and serially uncorrelated error term with some

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern