Version: Spring 2017
EC200 Econometrics and Applications

Problem Set 4\

1. Stock and Watson 6.6

2. Stock and Watson 7.4

3. Stock and Watson 7.8 (skip part c)

4. Stock and Watson, Additional Empirical Exercise 6.1

5. Stock and Watson, Additional Empirical Exercise 5.3

6. Suppose that average worker productivity at manufacturing firms ($avgprod$) depends on two factors: average hours of training ($avgtrain$) and average worker ability ($avgabil$)

   $$avgprod={\beta }_0+{\beta }_{1}avgtrain+{\beta }_{2}avgabil+u$$

   Assume this equation satisfies the Gauss-Markov assumptions. If grants have been given to firms whose workers have less than average ability, so that $avgtrain$ and $avgabil$ are negatively correlated, what is the likely bias on $\widetilde{{\beta }_1}$ obtained from the simple regression of $avgprod$ on $avgtrain$?

7. Finish and submit Lab 4.