Question 4

QUESTION 4 Continue to use the information in column (2) from Question 3. Is there evidence that the instrument in this column is weak? What is the relevant test statistic? (Report the number as it appears in the table). Therefore, does this suggest that the instrument is weak? (Type Yes or No)TABLE 12.1 Two Stage Least Squares Estimates of the Demand for Cigarettes Using Panel Data for 48 U.S. States Dependent variable: In(Q 1995 cigarettes) - In(Q1985 Regressor (1) (2) (3) In(pcigarettes) - In( pcigarettesy -0.94** -1.34** -1.20** 1,1985 (0.21) (0.23) (0.20) In(Inc;1995) - In(Inc;, 1985) 0.53 0.43 0.46 (0.34) (0.30) (0.31) Intercept -0.12 -0.02 -0.05 (0.07) (0.07) (0.06) Both sales tax and Instrumental variable(s) Sales tax Cigarette-specific tax cigarette-specific tax First-stage F-statistic 33.70 107.20 88.60 Overidentifying restrictions 4.93 J-test and p-value (0.026) These regressions were estimated using data for 48 U.S. states (48 observations on the 10-year differences). The data are described in Appendix 12.1. The J-test of overidentifying restrictions is described in Key Concept 12.6 (its p-value is given in parentheses), and the first-stage F-statistic is described in Key Concept 12.5. Individual coefficients are statistically significant at the *5% significance level or *$1% significance level