Economics 323: Econometric Analysis 2

Test 2
Friday October 20th , 2017

Instructor: Emmanuelle Piérard

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Name:

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Instructions:

1. Answer the questions on this paper. All explanations should be brief and
precise (use point form if you wish).

2. In order to get marks for the problems, you must show your work. No
marks will be awarded for the final answer alone.

3. No draft paper is allowed. If you need some, please ask a proctor for
some. Return it with your midterm.

4. NON-PROGRAMMABLE CALCULATORS ALLOWED.

5. You are allowed to take apart your test if easier for you but you must
hand in all sheets together at the end (whether you answered all questions
or not). Please write your name on each of them.

6. Use the statistical tables provided. DO NOT WRITE ON THEM OR

TAKE THEM APART OR YOU WILL BE PENALIZED. Please write the
number written in the top right corner here:
Good luck!

State who you studied with here:

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Student #:

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Question 1 (5 points)

You want to estimate the following model:

Yi = α + βXi + γGi + δZi + εi

where Yi is the Body Mass Index of the individual, Xi is their age, Gi

is their gender and Zi is their level of education in years. You only observe
their BMI if they had a physician visit in the past year.

What type of model would you use to estimate this regression? Why?
What steps would you have to take in order to estimate it?
Question 2 (23 points)

You want to estimate to the following model:

P
Inci = α + βEduci + γGenderi + j δj Occji + εi

Where Inc stands for Income of the individual in dollars, Educ for their
level of education in years, Gender for their gender and Occ are a variety of
variables standing in for the occupation of the individual.

a) Could Education be a source of endogeneity? What is endogeneity?

(4)

b) How could you test whether endogeneity is present? (4)

c) You also have the level of education of the mother of the individual
in years. Could it be used as an instrument? Why or why not? (5)

d) How could you estimate the model using mother’s education? (5)

(e) Should you worry about heteroskedasticity in this context? Why or

why not? Could you test for its presence and if so how? (5)
Extra space for Question 2 - your test is not missing a page
Question 3 (7 points)

You are given the following model:

Yt = α1 + β1 Pt + γ1 Xt + δ1 Zt + εt

Yt = α2 + β2 Pt + γ2 Xt + δ2 Wt + η2 Nt + εt

Where Y is the quantity of turkeys in the market at Thanksgiving, P

is their price, X is the price of chicken, a “crop” that is often raised at the
same farms as turkey, Z is the price of chicken and X is the price of poultry
feed and N is the price of farmland per acre in the region .

(a) What do these two equations represent? Be specific. This is where

you can use a friend.(2)

(b) Can you estimate the model above? If so how? If not, why not? Be
specific. (5)