QMM: Exercise Sheet 6 - Structural Equation Model:

Specification

Fabien Baeriswyl, Jérôme Reboulleau, Tom Ruszkiewicz

Exercise 1. Suppose we are willing to estimate the effect of attending an elite university on future earnings. We
wish to develop a graph for the following four variables:
ˆ Salary S;
ˆ Master rating C;
ˆ Qualifications prior to master degree Q1 ;
ˆ Qualifications after master degree Q2 .
a) For the variables above, specify which are likely to be latent/observed.
b) Specify the (theoretical) relationship between the variables above through a simple graph.
c) Is your model in b) recursive?
d) If you were to add a correlation between the disturbances of Q2 and S, would your previous answer change?
e) Is your model in b) identified? If not, how can you resolve the situation?
Exercise 2. Consider the model below and determine its degrees of freedom.

Exercise 3. Consider the model below and determine its degrees of freedom.

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Exercise 4. Consider the model below and determine whether it is identified or not.

Exercise 5. Consider the model below and compute its degrees of freedom. Is it recursive? Is it identified?

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