Introductory Econometrics: A Modern Approach 6th Edition by Jeffrey M Wooldridge

Exercise 4

Suppose that you wish to estimate the effect of class attendance on student performance, as in Example 6.3. A basic model is

stndfnl = ?0 + ?1atndrte + ?2priGPA + ?3ACT + u,

where the variables are defined as in Chapter 6.

(i) Let dist be the distance from the students' living quarters to the lecture hall. Do you think dist is uncorrelated with u?

(ii) Assuming that dist and u are uncorrelated, what other assumption must dist satisfy to be a valid IV for atndrte?

(iii) Suppose, as in equation (6.18), we add the interaction term priGPA-atndrte:

stndfnl = ?0 + ?1atn.drte + ?2priGPA + ?3 ACT + ?4priGPA-atndrte + u.

If atndrte is correlated with u, then, in general, so is priGPA-atndrte. What might be a good IV for priGPA-atndrte? [Hint: If E(upriGPA, ACT, dist) = 0, as happens when priGPA, ACT, and dist are all exogenous, then any function of priGPA and dist is uncor-related with u.]

Step 1 of 3

(i)

The given model is:

Consider is the distance from the student’s living quarters to the lecture hall, it would be reasonable to consider it to be un-correlated with because the student performance is not related to the distance from the student’s living quarters to the lecture hall and that the factors responsible for student performance other than that mentioned in the modelare not possibly correlated with

Had not included in the model, would have been correlated with