Consider the following macro-economic model, which is a structural model, C = α0 + α1 + u where Ci is aggregate consumpt
Posted: Mon May 02, 2022 9:31 am
Consider the following macro-economic model, which is a
structural model,
C = α0 + α1 + u
where Ci is aggregate consumption in year i,
Yi is GNP, and α1 is the Marginal Propensity
to Consume out of income (the MPC). Suppose that z1 and
z2 are two instruments for Y.
Explain intuitively the major difference of the instrumental
variable estimates of α1 between using instrument
z1 alone and using two instruments, z1 and
z2.
structural model,
C = α0 + α1 + u
where Ci is aggregate consumption in year i,
Yi is GNP, and α1 is the Marginal Propensity
to Consume out of income (the MPC). Suppose that z1 and
z2 are two instruments for Y.
Explain intuitively the major difference of the instrumental
variable estimates of α1 between using instrument
z1 alone and using two instruments, z1 and
z2.