1. Use the data in OPENNESS for this exercise. (i) Because log( pcinc ) is insignificant in both XXXXXXXXXXand the reduced form for open , drop it from the analysis. Estimate XXXXXXXXXXby OLS and IV...

1. Use the data in OPENNESS for this exercise.

(i) Because log(pcinc) is insignificant in both (16.22) and the reduced form for
open, drop it from the analysis. Estimate (16.22) by OLS and IV without log(pcinc). Do any important conclusions change?

(ii) Still leaving log(pcinc) out of the analysis, is
land
or log(land) a better instrument for
open? (Hint: Regress
open
on each of these separately and jointly.)

(iii) Now, return to (16.22). Add the dummy variable
oil
to the equation and treat it as exogenous. Estimate the equation by IV. Does being an oil producer have a ceteris paribus effect on

inflation?