Econometrics-I-13

Cornwell and rupert returns to schooling data 595

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Unformatted text preview: Cornwell and Rupert Returns to Schooling Data, 595 Individuals, 7 Years Variables in the file are EXP = work experience WKS = weeks worked OCC = occupation, 1 if blue collar, IND = 1 if manufacturing industry SOUTH = 1 if resides in south SMSA = 1 if resides in a city (SMSA) MS = 1 if married FEM = 1 if female UNION = 1 if wage set by union contract ED = years of education BLK = 1 if individual is black LWAGE = log of wage = dependent variable in regressions These data were analyzed in Cornwell, C. and Rupert, P., "Efficient Estimation with Panel Data: An Empirical Comparison of Instrumental Variable Estimators," Journal of Applied Econometrics, 3, 1988, pp. 149-155. See Baltagi, page 122 for further analysis. The data were downloaded from the website for Baltagi's text. &#152;&#152;&#152;&#152;™™™ ™ 32/61 Part 13: Endogeneity Source of Endogeneity n LWAGE = f( ED, EXP,EXPSQ,WKS,OCC, SOUTH,SMSA,UNION ) + n ED = f( MS,FEM,BLK, EXP,EXPSQ,WKS,OCC, SOUTH,SMSA,UNION ) + u &#152;&#152;&#152;&#152;™™™ ™ 33/61 Part 13: Endogeneity OLS &#152;&#152;&#152;&#152;™™™ ™ 34/61 Part 13: Endogeneity The weird results for the coefficient on ED happened because the instruments, MS,FEM,BLK are all dummy variables. There is not enough variation in these variables. &#152;&#152;&#152;&#152;™™™ ™ 35/61 Part 13: Endogeneity Endogeneity Test? (Hausman) Exogenous Endogenous OLS Consistent, Efficient Inconsistent 2SLS Consistent, Inefficient Consistent Base a test on d = b2SLS - bOLS Use a Wald statistic, d’[Var(d)]-1d What to use for the variance matrix? Hausman: V2SLS - VOLS &#152;&#152;&#152;&#152;™™™ ™ 36/61 Part 13: Endogeneity Hausman Test &#152;&#152;&#152;&#152;&#152;™™ ™ 37/61 Part 13: Endogeneity Endogeneity Test: Wu p Considerable complication in Hausman test (text, pp. 322-323) p Simplification: Wu test. p Regress y on X and X^ estimated for the endogenous part of X. Then use an ordinary Wald test. &#152;&#152;&#152;&#152;&#152;™™ ™ 38/61 Part 13: Endogeneity Wu Test Note: .05544 + . 54900 = .60444, which is the 2SLS coefficient on ED. &#152;&#152;&#152;&#152;&#152;™™ ™ 39/61 Part 13: Endogeneity Alternative to Hausman’s Formula? p H test requires the difference between an efficient and an inefficient estimator. p Any way to compare any two competing estimators even if neither is efficient? p Bootstrap? (Maybe) &#152;&#152;&#152;&#152;&#152;™™ ™ 40/61 Part 13: Endogeneity &#152;&#152;&#152;&#152;&#152;™™ ™ 41/61 Part 13: Endogeneity Measurement Error y = x* + all of the usual assumptions x = x* + u the true x* is not observed (education vs. years of school) What happens when y is regressed on x? Least squares attenutation : &#152;&#152;&#152;&#152;&#152;™™ ™ 42/61 cov(x,y) cov(x * u, x * ) plim b = var(x) var(x * u) var(x* ) = < var(x* ) var(u) + β +ε = + β β + Part 13: Endogeneity...
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Cornwell and Rupert Returns to Schooling Data 595...

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