1. [Practice problem] (a) After the data have been read in:
Do OLS on
COt = β0 + β1YDt + β2COt-1 + ε1t
by running
with the result
Next, do OLS on
It = β3 + β4Yt + β5rt-1 + ε2t
by running
with the result
(b) Use 2SLS to estimate
COt = β0 + β1YDt + β2COt-1 + ε1t
by running
with the result
Next, use 2SLS to estimate
It = β3 + β4Yt + β5rt-1 + ε2t
by running
with the result
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