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Introductory Econometrics 4th Edition by Jeffrey Wooldridge
Edition 4ISBN: 978-0324660609Introductory Econometrics 4th Edition by Jeffrey Wooldridge
Edition 4ISBN: 978-0324660609 Exercise 21
Use the data in PHILLIPS.RAW for this exercise.
(i) In Example 11.5, we estimated an expectations augmented Phillips curve of the form
inf t = 0 + 1 unemt + e t ,
where inf t = inf t - inft t-1. In estimating this equation by OLS, we assumed that the supply shock, e t , was uncorrelated with unem t. If this is false, what can be said about the OLS estimator of i1
(ii) Suppose that et is unpredictable given all past information: E(e t inf t-1 , unem t-1 ,...) = 0. Explain why this makes unem t-1 a good IV candidate for unem t.
(iii) Regress unem t on unem t-1. Are unem t and unem t-l significantly correlated
(iv) Estimate the expectations augmented Phillips curve by IV. Report the results in the usual form and compare them with the OLS estimates from Example 11.5.
(i) In Example 11.5, we estimated an expectations augmented Phillips curve of the form
inf t = 0 + 1 unemt + e t ,
where inf t = inf t - inft t-1. In estimating this equation by OLS, we assumed that the supply shock, e t , was uncorrelated with unem t. If this is false, what can be said about the OLS estimator of i1
(ii) Suppose that et is unpredictable given all past information: E(e t inf t-1 , unem t-1 ,...) = 0. Explain why this makes unem t-1 a good IV candidate for unem t.
(iii) Regress unem t on unem t-1. Are unem t and unem t-l significantly correlated
(iv) Estimate the expectations augmented Phillips curve by IV. Report the results in the usual form and compare them with the OLS estimates from Example 11.5.
Explanation
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(i)
The expected-augmented Phillips curv...
Introductory Econometrics 4th Edition by Jeffrey Wooldridge
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