Here Are Some Examples of the Instrumental Variables Regression Model

question 14

Essay

Here are some examples of the instrumental variables regression model.In each case you are given the number of instruments and the J-statistic.Find the relevant value from the distribution,using a 1% and 5% significance level,and make a decision whether or not to reject the null hypothesis.
(a)Yi = β0 + β1X1i + ui,i = 1,... ,n;Z1i,Z2i are valid instruments,J = 2.58.
(b)Yi = β0 + β1X1i + β2X2i + β3W1i + ui,i = 1,... ,n;Z1i,Z2i,Z3i,Z4i are valid instruments,J = 9.63.
(c)Yi = β0 + β1X1i + β2W1i + β3W2i + β4W3i + ui,i = 1,... ,n;Z1i,Z2i,Z3i,Z4i are valid instruments,J = 11.86.

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Definitions:

Acquired Company

A company that has been purchased by another entity.

Trading Securities

Marketable securities that a company holds for the purpose of trading in the short term, with the intent of generating profit from price movements.

Fair Value

The estimated market value of an asset or liability, reflecting the price that two willing parties would agree to in an arm's length transaction.

Held-to-maturity

A category for debt securities that a company has the positive intent and ability to hold until maturity, reported at amortized cost.