Run an OLS regression of logarithm wage (lwage) on years
1. Use The Data Set MROZ.Txt To Do The Following Regressions. To Read The Data Set Into R, You May Use The Read.Table Command, Such As: Data <- Read.Table(“MROZ.Txt”)
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(a) Run an OLS regression of logarithm wage (lwage) on years of schooling (educ), i.e., lwagei = α + βeduci + ui.
Use a sentence to interpret βˆOLS.
(b) Use ivreg command to run a Two Stage Least Squares (2SLS) regression. Use father’s years of schooling (fatheduc) as the instrument variable. Use a sentence to interpret βˆ 2SLS.
(c) Check the F-statistics from the first-stage regression. How large it is? Is the instrument variable weak?
(d) Perform a Hausman’s test to compare OLS with 2SLS estimators. Write down your test hypoth- esis, p-value and conclusion.
(e) Discuss if father’s years of schooling (fatheduc) is a solid instrument variable, i.e., satisfies con- ditions of instrument variables.
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