Consider the Baltagi and Levin (1986) cigarette demand example for 46 states. This data, updated from 1963-92,
Question:
Consider the Baltagi and Levin (1986) cigarette demand example for 46 states. This data, updated from 1963-92, is available on the Springer web site as cigar.txt.
(a) Estimate equation (8.43) using 2SLS, FD-2SLS and their Keane and Runkle (1992) version. (Assume only \(\ln C_{i, t-1}\) is endogenous).
(b) Estimate question (8.43) using the Within and FE-2SLS and perform the Hausman-type test based on FE-2SLS versus FD-2SLS.
(c) Perform the Hausman-type test based on 2SLS versus FD-2SLS.
(d) Perform the Anderson and Hsiao (1982) estimator for equation (8.43).
(e) Replicate the two-step robust Arellano and Bond (1991) GMM estimator for equation (8.43) given in Table 8.2.
(f) Replicate the System GMM estimator for equation (8.43) given in Table 8.3.
Table 8.2:
Table 8.3:
\[\begin{equation*}
\ln C_{i t}=\alpha+\beta_{1} \ln C_{i, t-1}+\beta_{2} \ln P_{i, t}+\beta_{3} \ln Y_{i t}+\beta_{4} \ln P n_{i t}+u_{i t} \tag{8.43}
\end{equation*}\]
Step by Step Answer:
