Principles of Econometrics Coursework Example | Topics and Well Written Essays - 2250 words

Principles of Econometrics - Coursework Example Random assignment does not guarantee that the groups are "matched" or equivalent, only that any differences are due to chance. Control group is a valid counterfactual since it is a proof that your experiment had a specific outcome. At the end of the experiment, you have the results for the control group (the group where no intervention/treatment was applied) and the results for the group(s) where an intervention/treatment was applied. We only get useful information only when we compare those two sets of results. The  Hawthorne effect  (also referred to as the  observer effect) refers to a  phenomenon  whereby individuals improve or modify an aspect of their behavior in response to their awareness of being observed Multicollinearity  (also  collinearity) is a statistical phenomenon in which two or more predictor  variables  in a  multiple regression  model are highly  correlated, meaning that one can be linearly predicted from the others with a non-trivial degree of accuracy. In this situation the  coefficient estimates  of the multiple regression may change erratically in response to small changes in the model or the data. (a) Explain what is meant by measurement error and how does it cause endogeneity bias? (4 marks) When the measurement error is in the dependent variable, the zero conditional mean assumption is not violated and thus no endogeneity. However, when the measure error is in the independent variable, the problem of endogeneity arises. Suppose that . Explain how an instrumental variables regression estimated using two stage least squares (TSLS) can be used to obtain consistent estimates of the regression coefficients. (7 marks) Instrumental variable (IVs) methods especially using