Question 5

QUESTION 5 For this question use information in column (3) from Question 3. From the information provided, what can we conclude about the exogeneity of the instruments? Use a 5% level of significance. a. Both the instruments are exogenous. O b. Neither of the instruments are exogenous. O C. At least one of the instruments is exogenous. O d. At least one of the instruments is endogenous.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