IVEstimation - IV Estimation Instrumental Variables Y = X +...

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Unformatted text preview: IV Estimation Instrumental Variables Y = X + u t 1 2 2,t k k,t t Y = + X + X + u t = 1,...,T ... + Y = X + u Y X ) X X ( = -1 OLS ) u X ( X ) X (X = / 1- / OLS + u X ) X X ( + = -1 OLS ) u X ) X (X X X ) X (X = / 1- / / 1- / OLS + ) ( E then , ) u , X ( Cor If OLS estimates t inefficien and consistent IV while estimates efficient and consistent OLS then ) u , X ( Cor If = T 1,..., = t u + X + = Y t t 2 1 t estimates consistent IV while estimates nt inconsiste OLS then ) u , X ( Cor If T 1,..., = t u + X + = Y t t 2 1 t Implication Estimate model by OLS and by IV, and compare estimates If If But test INDIRECTLY using Wu-Hausman test. OLS use IV OLS IV use IV OLS THE INSTRUMENTAL VARIABLES (IV) ESTIMATOR Suppose that one or more of the regressors in X is not independent of the equation error term, even in the limit as the sample size...
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This note was uploaded on 03/01/2012 for the course EC 408 taught by Professor Rogerperman during the Fall '07 term at Uni. Strathclyde.

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IVEstimation - IV Estimation Instrumental Variables Y = X +...

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