Give the RMD and docx similar to before. Thank you

Give the RMD and docx similar to before. Thank you


Final Exam-100 points DS-UA 201 Causal Inference Instructor: Parijat Dube August 15, 2023 Wi1 by considering the scenario in which all non-blue-collar voters in precinct i vote for the Nazis. Express this value as a function of Xi and Yi. Similarly, what is the largest possible value for Wi1 ? Calculate these bounds, keeping in mind that the value for Wi1 cannot be negative or greater than 1. Finally, compute the bounds for the nationwide proportion of blue-collar voters who voted for the Nazis (i.e., combining the blue-collar voters from all precincts by computing their weighted average based on the number of blue-collar voters). Give a brief substantive interpretation of the results. Problem 5 (20 points) In this problem we are interested in the question of whether an extra year of education causes increased wages. We will use wage2.csv data used in the following paper: M. Blackburn and D. Neumark (1992), Unobserved Ability, E�ciency Wages, and Interindustry Wage Di↵erentials, Quarterly Journal of Economics 107, 1421-1436. https://doi.org/10.3386/w3857 This dataset includes a bunch of di↵erent variables. These are the variables we care about for this question: Variable name Description wage Monthly wage (1980 dollars) educ Years of education feduc Years of education for father meduc Years of education for mother Question A (4 points) 1. (2 points) First create a naive model of the relationship between years of education and wage, by treating wage as a dependent variable. What is the e↵ect of education on wage as predicted by the model? 2. (2 points) Does this naive model correctly estimates the e↵ect of education on wages? Why or why not? Question B (6 points) We next want to apply 2SLS (two-stage least squares) approach to account for unobservable con- founders. For this we need to identify an instrument variable (IV). Remember, for an instrument to be valid, it should meet these criteria: 1. Relevance: Instrument is correlated with policy variable 2. Exclusion: Instrument is correlated with outcome only through the policy variable 3. Exogeneity: Instrument isn’t correlated with anything else in the model (i.e. omitted variables) 8 https://doi.org/10.3386/w3857 Final Exam-100 points DS-UA 201 Causal Inference Instructor: Parijat Dube August 15, 2023 We have two choices for the instrument variable: years of education of father and years of education of mother. Select one of them and show using the data that it satisfies all the three criteria to be an instrument variable. Question C (5 points) Using the IV identified in Question B, you will next perform 2SLS manually. 1. (2 points) In the first stage, predict education using the IV. 2. (3 points) In the second stage, use the predicted education to estimate the exogenous e↵ect of education on wages. What is the causal e↵ect of education on wage using this 2SLS analysis? Question D (5 points) Now using iv robust() perform 2SLS in a single step. 1. (2 points) Compare the exogenous e↵ect of education on wages predicted by the manual 2SLS from Question C with the e↵ect obtained using iv robust(). Are they same or di↵erent? 2. (3 points) Next compare the standard errors of the e↵ect estimate from the two approaches. Which approach correctly estimates the standard error and why? 9