To study the determinants of growth across the countries in the world, researchers have used country level observations averaged over long periods of time (e.g. averaged over 1960- 2000). Some of these studies have focused on the effect that inflation has on growth and found that although the effect is small for a given time period, it accumulates over time and therefore has an important negative effect. (a) Explain why the OLS estimator may be biased in this case. (b) Some authors have suggested using an index of the Central Bank Independence as an instrumental variable. Discuss whether or not such an index would be a valid instrument (discuss both relevance and exogeneity; note that instrumental validity is more of an economic rather than econometric concept
To study the determinants of growth across the countries in the world, researchers have used country level observations averaged over long periods of time (e.g. averaged over 1960- 2000). Some of these studies have focused on the effect that inflation has on growth and found that although the effect is small for a given time period, it accumulates over time and therefore has an important negative effect. (a) Explain why the OLS estimator may be biased in this case. (b) Some authors have suggested using an index of the Central Bank Independence as an instrumental variable. Discuss whether or not such an index would be a valid instrument (discuss both relevance and exogeneity; note that instrumental validity is more of an economic rather than econometric concept
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter5: Business And Economic Forecasting
Section: Chapter Questions
Problem 1.2CE: Plot the logarithm of arrivals for each transportation mode against time, all on the same graph....
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To study the determinants of growth across the countries in the world, researchers have used country level observations averaged over long periods of time (e.g. averaged over 1960- 2000). Some of these studies have focused on the effect that inflation has on growth and found that although the effect is small for a given time period, it accumulates over time and therefore has an important negative effect.
(a) Explain why the OLS estimator may be biased in this case.
(b) Some authors have suggested using an index of the Central Bank Independence as an instrumental variable. Discuss whether or not such an index would be a valid instrument (discuss both relevance and exogeneity; note that instrumental validity is more of an economic rather than econometric concept
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