Question: C16.4 Use the data in CONSUMP.RAW for this exercise. (i) In Example 16.7, use the method from Section 15.5 to test the single overidentifying restriction

C16.4 Use the data in CONSUMP.RAW for this exercise. (i) In Example 16.7, use the method from Section 15.5 to test the single overidentifying restriction in estimating (16.35). What do you conclude? (ii) Campbell and Mankiw (1990) use second lags of all variables as IVs because of potential data measurement problems and informational lags. Reestimate (16.35), using only gc,-2, gy-2, and r3,-2 as IVs. How do the estimates compare with those in (16.36)? EV Regress gy, on the IVs from part (ii) and test whether gy, is sufficiently correlated with them. Why is this important?

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