Question 1

Exogeneity of an independent variable occurs when

Accepted Answer

A) an independent variable is correlated with the dependent variable. 
B) the dependent variable is correlated with the error term. 
C) an independent variable is uncorrelated with the error term. 
D) the dependent variable is correlated with an independent variable. 
A) an independent variable is correlated with the dependent variable. 
B) the dependent variable is correlated with the error term. 
C) an independent variable is uncorrelated with the error term. 
D) the dependent variable is correlated with an independent variable. C

Question 2

Endogeneity of an independent variable presents a challenge because

Accepted Answer

A) OLS estimates are biased and inconsistent. 
B) it causes the regression to be perfectly collinear. 
C) it leads to heteroskedasticity. 
D) OLS estimates remained unbiased but they are no longer BLUE. 
A) OLS estimates are biased and inconsistent. 
B) it causes the regression to be perfectly collinear. 
C) it leads to heteroskedasticity. 
D) OLS estimates remained unbiased but they are no longer BLUE. A

Question 3

The first-stage in an instrumental variable approach to identify simultaneous equations is to regress

Accepted Answer

A) the endogenous right hand side variables on the instruments and all exogenous variables. 
B) the dependent variable on the predicted endogenous right hand side variables and the exogenous variables in each equation. 
C) instrumental variable on all exogenous variables. 
D) the exogenous right hand side variables on only the instrumental variables. 
A) the endogenous right hand side variables on the instruments and all exogenous variables. 
B) the dependent variable on the predicted endogenous right hand side variables and the exogenous variables in each equation. 
C) instrumental variable on all exogenous variables. 
D) the exogenous right hand side variables on only the instrumental variables. A

Question 4

What are simultaneous equations? How can instrumental variables be used to control for simultaneous equations? Why? Explain.

Accepted Answer

Simultaneous equations occur when two or

Question 5

What are endogenous independent variables? How can instrumental variables be used to control for endogenous independent variables? Why? Explain.

Accepted Answer

An endogenous independent variable is on

Question 6

What is measurement error in an independent variable? How can instrumental variables be used to control for measurement error in independent variables? Why? Explain.

Accepted Answer

Measurement error in an independent vari

Question 7

Two-stage least squares can be used to

Accepted Answer

A) control for heteroskedasticity. 
B) control for measurement error in an independent variable. 
C) deal with limited dependent variables. 
D) account for the time-invariant component of the error term. 
A) control for heteroskedasticity. 
B) control for measurement error in an independent variable. 
C) deal with limited dependent variables. 
D) account for the time-invariant component of the error term.

Question 8

Simultaneous equations present a challenge because OLS estimates

Accepted Answer

A) do not properly weight the data for the undue influence of outliers. 
B) do not account for the autoregressive structure of the error term. 
C) treat the dependent variable as a continuous variable. 
D) are biased because one or more right hand side variables from each equation are correlated with the error term due to the equations being jointly determined. 
A) do not properly weight the data for the undue influence of outliers. 
B) do not account for the autoregressive structure of the error term. 
C) treat the dependent variable as a continuous variable. 
D) are biased because one or more right hand side variables from each equation are correlated with the error term due to the equations being jointly determined.

Question 9

The first-stage in an instrumental variable approach to control for measurement error in an independent variable is

Accepted Answer

A) regressing the mis-measured variable on only the exogenous variables in the original regression equation and using those estimates to calculate predicted values of the mis-measured variable. 
B) regressing the mis-measured variable on only the alternative value of the mis-measured variable. 
C) estimating the original population regression model with the predicted values of the mis-measured variable substituted for the observed values of the endogenous variable. 
D) regressing the mis-measured variable on both the alternative measure of the mis-measured variable and all of the remaining exogenous variables and using those estimates to calculate predicted values of the mis-measured variable. 
A) regressing the mis-measured variable on only the exogenous variables in the original regression equation and using those estimates to calculate predicted values of the mis-measured variable. 
B) regressing the mis-measured variable on only the alternative value of the mis-measured variable. 
C) estimating the original population regression model with the predicted values of the mis-measured variable substituted for the observed values of the endogenous variable. 
D) regressing the mis-measured variable on both the alternative measure of the mis-measured variable and all of the remaining exogenous variables and using those estimates to calculate predicted values of the mis-measured variable.

Question 10

Two-stage least squares can be used to

Accepted Answer

A) account for the time-invariant component of the error term. 
B) control for heteroskedasticity. 
C) control for measurement error in a dependent variable. 
D) control for the endogeneity of independent variable. 
A) account for the time-invariant component of the error term. 
B) control for heteroskedasticity. 
C) control for measurement error in a dependent variable. 
D) control for the endogeneity of independent variable.

Question 11

Two-stage least squares can be used to

Accepted Answer

A) identify simultaneous equations. 
B) control for heteroskedasticity. 
C) account for the time-invariant component of the error term. 
D) deal with limited dependent variables. 
A) identify simultaneous equations. 
B) control for heteroskedasticity. 
C) account for the time-invariant component of the error term. 
D) deal with limited dependent variables.

Question 12

An instrumental variable is a variable that is correlated

Accepted Answer

A) with the endogenous right hand side variable but not correlated with the error term. 
B) with the error term but not correlated with the endogenous right hand side variable. 
C) with both the error term and the endogenous right hand side variable. 
D) with both the endogenous right hand side variable and with another independent variable. 
A) with the endogenous right hand side variable but not correlated with the error term. 
B) with the error term but not correlated with the endogenous right hand side variable. 
C) with both the error term and the endogenous right hand side variable. 
D) with both the endogenous right hand side variable and with another independent variable.

Question 13

Measurement error in an independent variable occurs when

Accepted Answer

A) the dependent variable is uncorrelated with the error term. 
B) the true value of the independent variable is observed. 
C) the true value of the left hand side variable is not known. 
D) the variable $x _ { 1 i }$ is measured with error such that
 $x _ { 1 i } = x _ { 1 i } ^ { * } + u _ { 1 i } \text { and } x _ { 1 i } ^ { * }$ is the true value of the variable. 
A) the dependent variable is uncorrelated with the error term. 
B) the true value of the independent variable is observed. 
C) the true value of the left hand side variable is not known. 
D) the variable $x _ { 1 i }$ is measured with error such that
 $x _ { 1 i } = x _ { 1 i } ^ { * } + u _ { 1 i } \text { and } x _ { 1 i } ^ { * }$ is the true value of the variable.

Question 14

Endogeneity of an independent variable occurs when

Accepted Answer

A) an independent variable is correlated with the dependent variable. 
B) an independent variable is correlated with the error term. 
C) the dependent variable is correlated with the error term. 
D) the dependent variable is correlated with an independent variable. 
A) an independent variable is correlated with the dependent variable. 
B) an independent variable is correlated with the error term. 
C) the dependent variable is correlated with the error term. 
D) the dependent variable is correlated with an independent variable.

Question 15

For an instrument to be valid it must be

Accepted Answer

A) correlated with both the dependent variable and the endogenous variable. 
B) uncorrelated with both the dependent variable and the endogenous variable. 
C) correlated with the endogenous variable but uncorrelated with the error term. 
D) correlated with the error term but uncorrelated with the endogenous variable. 
A) correlated with both the dependent variable and the endogenous variable. 
B) uncorrelated with both the dependent variable and the endogenous variable. 
C) correlated with the endogenous variable but uncorrelated with the error term. 
D) correlated with the error term but uncorrelated with the endogenous variable.

Question 16

The first-stage in an instrumental variable approach to controlling for endogenous independent variables is to

Accepted Answer

A) regress the endogenous independent variable on the instrument and all of the remaining independent variables and using those estimates to calculate predicted values of the endogenous variable. 
B) regress the endogenous variable on the instrument and all of the remaining independent variables and using those estimates to calculate the residuals. 
C) estimate the original population regression model with the predicted values of the endogenous variable substituted for the observed values of the endogenous variable. 
D) estimate the original population regression model with the predicted residuals included as an independent variable. 
A) regress the endogenous independent variable on the instrument and all of the remaining independent variables and using those estimates to calculate predicted values of the endogenous variable. 
B) regress the endogenous variable on the instrument and all of the remaining independent variables and using those estimates to calculate the residuals. 
C) estimate the original population regression model with the predicted values of the endogenous variable substituted for the observed values of the endogenous variable. 
D) estimate the original population regression model with the predicted residuals included as an independent variable.

Question 17

Measurement error in an independent variable presents a challenge because

Accepted Answer

A) the independent variable is not correlated with the dependent variable. 
B) the OLS estimates are biased. 
C) the OLS estimates are unbiased but no longer BLUE. 
D) the independent variable is not correlated with the error term. 
A) the independent variable is not correlated with the dependent variable. 
B) the OLS estimates are biased. 
C) the OLS estimates are unbiased but no longer BLUE. 
D) the independent variable is not correlated with the error term.

Question 18

Simultaneous equations occur when two are more equations

Accepted Answer

A) that have the same error term. 
B) contain variables that are related to each other. 
C) contain the same independent variables. 
D) contain autocorrelated variables. 
A) that have the same error term. 
B) contain variables that are related to each other. 
C) contain the same independent variables. 
D) contain autocorrelated variables.

Question 19

Suppose you are interested in determining the degree to which the speed one normally drives correlates with the number of accidents in which one has been involved but you are afraid that self-reported driving speed is measured with error because respondents tend to under-report their true driving speeds.After collecting data for a sample of 123,897 married drivers between 25 and 40,you estimate the following model Second-Stage:
$$\begin{array} { lllll } 
Ac\widehat {clde}nts  _ { i } = & 1.4 .6 +& 0.045 SelfRe\widehat {port}Speed _ { i } +& 0.004 \text { Miles Driven } _ { i } +& 1.23 \text { Male } _ { i } \
&( 0.354 )& ( 0.0034 ) & ( 0.002 ) & ( 0.01 )
\end{array}$$
First-Stage:
SelfRe$\widehat {port}$Speed $_ { i }$
$$\begin{array}{ lllll } 
= 3.23 + &6.029 \text { SpouseRepSpeed } _ { i } +& 2.396 \text { MilesDriven } _ { i } + &4.076 \text { Male } _ { i } \
(2.54) &(2.137) & (1.002)&(1.382)\
\end{array}$$ 
a)Explain what type of issues using self report speed creates for estimating the second stage model using OLS.
b)Spouse Rep speed is another variable where the spouse of the driver is also asked how fast the individual is driving.Spouse reported speed is measured with error but the error is not related to the error in self report speed.Explain how to use the new measure as an instrument for self report speed.
c)Comment on the instrumental variable results above.
d)Do you believe the self reported speed or spouse reported speed is a more accurate measure? Are there any other independent variables that you believe are measured with error? Why or why not?

Accepted Answer

a)Self reported speed results in measure

Question 20

Two-stage least squares

Accepted Answer

A) is an instrumental variable technique that can be used to control for endogeneity of an right hand side variable. 
B) can be used to control for jointly determined simultaneous equations. 
C) can be used to control for measurement error of an independent variable. 
D) All of the above are correct. 
A) is an instrumental variable technique that can be used to control for endogeneity of an right hand side variable. 
B) can be used to control for jointly determined simultaneous equations. 
C) can be used to control for measurement error of an independent variable. 
D) All of the above are correct.

Exogeneity of an independent variable occurs when

Endogeneity of an independent variable presents a challenge because

The first-stage in an instrumental variable approach to identify simultaneous equations is to regress

What are simultaneous equations? How can instrumental variables be used to control for simultaneous equations? Why? Explain.

What are endogenous independent variables? How can instrumental variables be used to control for endogenous independent variables? Why? Explain.

What is measurement error in an independent variable? How can instrumental variables be used to control for measurement error in independent variables? Why? Explain.

Two-stage least squares can be used to

Simultaneous equations present a challenge because OLS estimates

The first-stage in an instrumental variable approach to control for measurement error in an independent variable is

Two-stage least squares can be used to

Two-stage least squares can be used to

An instrumental variable is a variable that is correlated

Measurement error in an independent variable occurs when

Endogeneity of an independent variable occurs when

For an instrument to be valid it must be

The first-stage in an instrumental variable approach to controlling for endogenous independent variables is to

Measurement error in an independent variable presents a challenge because

Simultaneous equations occur when two are more equations

Two-stage least squares

An Introduction to Econometrics and Statistical Inference

Collection and Management of Data

Summary Statistics

Simple Linear Regression

Hypothesis Testing in Linear Regression Analysis

Multiple Linear Regression Analysis

Qualitative Variables and Non-Linearities in Multiple Linear Regression Analysis

Model Selection in Multiple Linear Regression Analysis

Heteroskedasticity

Time Series Analysis

Auto-Correlation

Limited Dependent Variables

Panel Data

Quantile Regression, Count Data, Sample Selection Bias, and Quasi-Experimental Methods

Filters

Exam 14: Instrumental Variables for Simultaneous Equations, Endogenous Independent Variables, and Measurement Error

Exogeneity of an independent variable occurs when

Endogeneity of an independent variable presents a challenge because

The first-stage in an instrumental variable approach to identify simultaneous equations is to regress

What are simultaneous equations? How can instrumental variables be used to control for simultaneous equations? Why? Explain.

What are endogenous independent variables? How can instrumental variables be used to control for endogenous independent variables? Why? Explain.

What is measurement error in an independent variable? How can instrumental variables be used to control for measurement error in independent variables? Why? Explain.

Two-stage least squares can be used to

Simultaneous equations present a challenge because OLS estimates

The first-stage in an instrumental variable approach to control for measurement error in an independent variable is

Two-stage least squares can be used to

Two-stage least squares can be used to

An instrumental variable is a variable that is correlated

Measurement error in an independent variable occurs when

Endogeneity of an independent variable occurs when

For an instrument to be valid it must be

The first-stage in an instrumental variable approach to controlling for endogenous independent variables is to

Measurement error in an independent variable presents a challenge because

Simultaneous equations occur when two are more equations

Two-stage least squares

An Introduction to Econometrics and Statistical Inference

Collection and Management of Data

Summary Statistics

Simple Linear Regression

Hypothesis Testing in Linear Regression Analysis

Multiple Linear Regression Analysis

Qualitative Variables and Non-Linearities in Multiple Linear Regression Analysis

Model Selection in Multiple Linear Regression Analysis

Heteroskedasticity

Time Series Analysis

Auto-Correlation

Limited Dependent Variables

Panel Data

Quantile Regression, Count Data, Sample Selection Bias, and Quasi-Experimental Methods

Filters