Module 5: Regression Estimation of DC

Question 1

Define simultaneity.

Answer 1

When 1+ explanatory varaibles is joinly determined with the dependen variable. Typcially through an equilibrium mechanism

Question 2

Give some examples of simulaneous equations

Answer 2

• Suppy and Demand
• Health and Education
• Murder Rates and Police Force

Question 3

T/F: For an SEM to make senes, each equation should have a ceteris paribus, causual interpretation in isolation from the other equation

Answer 3

True

Question 4

Define rank condition.

Answer 4

the first eqation in a two-equation simultaneous equations model is identified if and only if the second equation contains at least one exogenous variable that is excluded from the first equation.

Question 4

For a demand equation, describe the bias on price.

Answer 4

When estimated in OLS, the coefficient is biased towards positive (underestimate)

Question 4

For a supply equation, describe he bias on price.

Answer 4

When estimated in OLS, the coefficient is biased towards negative (underestimtates)