14. The outputs below have been presented to youas a sons Your client is investi
ID: 1151447 • Letter: 1
Question
14. The outputs below have been presented to youas a sons Your client is investigating the hypothesis that nuclear families are able to invest their resources in health hence have children with better nutritional status. Your terms of reference is as a. Comment fully on the instrumental variable estimation model. [Hints: What is the instrument? What is the intuition? Why consider instrumental variable estimation in the follows: context of the hypothesis? Robustness and so on). [10 marks] Tastrumentai variable tstinstion Resuits nyclear fanaties ave Pirat-stage regressions First-stage regression of nue indexli OLS estimation Estimates efticient for homoskedasticity only Statiatics consistent for homoskedasticlty only P 22, 2017) 13.25 Total (centered) sS Centered R2 0-1263 Uncentered R2-0.9822 Root MSE -36.05824629 Total (uncentered) ss 1770.364965 Residual ss 31.50510758 nuc_index1 I Coef. Std. Err. t P>It| [95% conf. Interval 0046109 0004649 vealth ind-1.20e-07 5.73e-08 -2.09 0.0372.32e-07 7.42e-09 male_child.0062922 .0055596 1.13 0.258-.0171953 0.31 0.7540003369 age_child 000064 0002044 diarrhea recent.0041363 .0070009 0.59 0.555 66 0002738 -.0178 .0095934 0011732 0014447 .0128771 0016737 .0076621 mother age 0004586 0020725 -.023809 0266985 toilet flush vater source 0.22 0.827.0133527 0167001 Ieducation i 0195509 .0079559 -2.46 0.014.0351535.0039482 leducation 21-,0184731 Ieducation 3 .0084999-2.17 0.030 ”.0351426-0018036 054158 .0133695-4.05 0.000 .0803773-.0279386 042778 0137042 1.000 3.12 0.002 -|region-21-7.71e-07.0143326-0.00 -.0291091 .015902 -.016078 .0135043 1.19 0.234.0425618 1.40 0.162 .0076155 0.19 0.851 .0203523 0.93 0.353 .0128478 .0281075 0696539 0104059 0454667 Iregion 3 Iregion4 Iregion_5 0189256 .0135335 .0021513 .0114747 0115802 .012456 Iregion 6 0246548 Iregion Iregion 80253327 .0122119 2.07 0.038 Iregion 9.0315092 .0140966 2.24 0.026 .0591546-.0038637 036008 049282.0013834 Iregion_10-.0903204 .0133367 -6.77 0.000 1164757 0641652 015578 000779 dependency0203004 .0017133 -11.85 0.0000236603 0169404 9422906 1.013406 urban .0014452 .0086802 0.17 0.868 0184684 breast duration -.000061 .0004283-0.14 0.8870009011 cons.9778484 .0181312 53.93 0.000 Included instruments: male child age child wealth ind diarrhea_recent mother_age toilet flush water_source Teducation 1 Ieducation 2 Ieducation_3 _Iregion 2Iregion_3 _Iregion_4 _Iregion 5 Iregion 6 Iregion_7 _Iregion 8 Iregion 9 Iregion_10 urban breast_duration dependencyExplanation / Answer
the instrumetal variable method is used to estimate smething that is corelated with the wrong term. the procedure for correcting this problem is finding instrument for uncorrelated error term and correlated endogenous variable.
it is amodel that used a third variabl inorder to a regression analysis when their is avariable that is influvenced by other variables in the model . it helps to identify a hidden correalation between two variables .
what is instrument?
the instrumental variables are difficult to find in real life.and they are sometimes notexist at all their are two types of variable in a model they are
1 exogenous variable.the variables which are not affected by the variable in the model
2. endogenous variables. which are corelated with other variables in the model
what is intuition
an intuition is the ability to acquire knowldge without any proofor evidence something that can understand without reasoning
instrumental variables estimates are used when casual relation of estimation is not feasble .in econometrics related method the instrumental variable estimation is used to interpert the iv th estimates . avery commom context of iv th estimation is the linear regeression.
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