# Econometric Assignment 2016

March 14, 2016

A derivative simultaneous equations model from the one presented in class is where pcexpi is per capita state expenditures, pcaidi is federal aid to states, dpopi is a measure for population per capita, and psi the percent of the population of primary and secondary schooling. Using Stata, estimate the following relationships.

Estimate pcexpi with OLS. Report the computer printout in output form in a table.
Estimate pcaidi with OLS. Report the computer printout in output form in a table.
Is the pcexpi equation under, over, or exactly identified?
Is the pcaidi equation under, over, or exactly identified?
With a plug and chug (manuel) Hausman test, determine if assumption A5 holds for the pcexpi equation. At what significance level?
With a plug and chug (manuel) Hausman test, determine if assumption A5 holds for the pcaidi equation. At what significance level?
Using manual two-stage least squares, estimate the structural equation for pcexpi in Stata when the predicted value of pcaidiis the instrument.
Using manual two-stage least squares, estimate the structural equation for pcaidi in Stata when the predicted value of pcexogiis the instrument.
Using Stata’s default two stage least squares (with the computer), estimate the structural equation for pcexpi in Stata.
As an instrument, is pcaidi relevant in pcexpi? Show this using an appropriate test.
Is paidi endogenous in the pcexpistructural equation? Show this using the appropriate test.
As an instrument, pcexpi is relevant in pcaidi? Show this using an appropriate test.
Is pcexpi exogenous in the paidi structural equation? Show this using the appropriate test.
Using Stata’s two stage least squares (with the computer), estimate the structural equation for pcaidi in Stata.
Print your results from A, B, E, F, G, and H in a comparison table. Report coefficients and standard errors. Using stars, signify which coefficients are statistically significant.
For pcexpi and pcaidi, which estimation technique, OLS or TSLS, has the most desirable properties?
Which estimation technique’s t-statistics are reliable? OLS, TSLS-by hand, TSLS with the computer?

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