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Unformatted text preview: 12.1. (a) The change in the regressor, ,1995 ,1985 ln( ) ln( ), cigarettes cigarettes i i P P from a $0.50 per pack increase in the retail price is ln(8.00) ln(7.50) 0.0645. The expected percentage change in cigarette demand is 0.94 0.0645 100% .07%. The 95% confidence interval is ( 0.94 1.96 0.21) 0.0645 100% [ 8.72%, 3.41%]. (d) The instrumental variable would be too weak (irrelevant) if the F-statistic in column (1) was 3.6 instead of 33.6, and we cannot rely on the standard methods for statistical inference. Thus the regression would not provide a reliable answer to the question posed in (a). 12.5. (a) Instrument relevance. i Z does not enter the population regression for i X (b) Z is not a valid instrument. * ˆ X will be perfectly collinear with W . (Alternatively, the first stage regression suffers from perfect multicollinearity.) (c) W is perfectly collinear with the constant term....
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This note was uploaded on 02/02/2012 for the course ECON 140 taught by Professor Duncan during the Spring '08 term at University of California, Berkeley.
- Spring '08