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Homework 6. 1) Empirical E12.2 2) Suppose that you wish to estimate the effect of class attendance on student performance. A basic model is stndfnl = 0 + 1atndrte + 2 proGPA + 3 ACT + u (1) Where stndfnl = standardized outcome on a final exam; atndrte = percentage of classes attended; priGPA = prior grade point average; ACT = ACT score. 2.1) You may be concerned about the endogeneity of atndrte. Explain what is the endogeneity problem. Why OLS is invalid in the presence of the endogeneity? Which statistical test allows to check the endogeneity issue? 2.2) Let dist be the distance from the students’ living quarters to the lecture hall. Do you think dist is uncorrelated with u? 2.3) Assuming that dist and u are uncorrelated, what other assumptions must dist satisfy to be a valid IV for atndrte? How can we check statistically the validity of the instrument? Would be the J-test of overidentifying restrictions feasible? 2.4) Name the method of estimation used to obtain an IV estimator of 1 . Write down equations estimated at two stages of the method. ...
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