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Introductory Econometrics: A Modern Approach 6th Edition by Jeffrey M Wooldridge
Edition 6ISBN: 130527010XIntroductory Econometrics: A Modern Approach 6th Edition by Jeffrey M Wooldridge
Edition 6ISBN: 130527010XUse the data in OPENNESS.RAW for this exercise.
(i) Because log(pcinc) is insignificant in both and the reduced form for open, drop it from the analysis. Estimate by OLS and IV without log(pcinc). Do any important conclusions change?
(ii) Still leaving log(pcinc) out of the analysis, is land or log(land) a better instrument for open? (Hint: Regress open on each of these separately and jointly.)
(iii) Now, return to Add the dummy variable oil to the equation and treat it as exogenous. Estimate the equation by IV. Does being an oil producer have a ceteris paribus effect on inflation?
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(i)
Estimating the model using OLS, given by:
The result is:
When the OLS model is estimated including
, the result is:
The estimates of the coefficients of
are almost same with or without 
Estimating the model using IV given by:
When the IV model is estimated including
, the result is:
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