Explain how variables satisfy logic of insrumental variables

Reference no: EM13235056

the labor supply of married women has been a subject of a great deal of economic research . Consider the following supply equation speceification

HOURS=B1+B2WAGE+B3EDUC+B4AGE+B5KIDS6+B6KIDS618+B7NWIFEINC+e

where HOURS is the supply of labor, WAGE is hourly wage, is year of EDUC KIDS6 is the nunber of children in the household who are less than 6 years old, KIDS 618 is the nuber between 6 and 18 years old and NWIFEINC is househld income from sources other than the wif's employment

(a) Discuss the signs you expect for each of coefficients

(b) Explain why this supply equation cannot be consistently estimated by least squares regression

(c) Suppose we consider the woman's labor market experirnce EXPER and its square EXPER2 , to be instrumental for WAGE . Explain how these variables satisfy the logic of insrumental variables

(d) Is the supply equation identifies? explain

(e) Describe the steps you would take to obtain2SLS estimates

Reference no: EM13235056

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