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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 Fstatistic 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
 DUNCAN
 Econometrics

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