Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit

Econ 410 Practice Problems

Day 8

Exercise 1: Recall the following regression output from Stata (the units of the wage variable is dollars per hour and the units of the education variable is years of education):

.  regress  wage  educ

a) Suppose someone claims you have omitted an important variable, age, since people’s wages tend to rise as they get older.  Assume that age is uncorrelated with education. How does the omission of age from your model impact your estimator for the returns to education? In particular, what’s the sign of the omitted variable bias?

Exercise 2

a) The OLS estimators for the following model:

are the solution to what minimization problem?

b) True or False:  If we estimate the model from part (a) using OLS, then the following equation will hold: