Student name: JUNERA FARHEEN

part a

Command: sum Descripton: 254654 observations and 10 variables.

part b

Command: reg weeksm1 morekids, robust Description: The coefficient is -5.387. Women with over two children work 5.387 weeks less per year than women with two or fewer children. part c Women working more than average hours are less likely to have additional children. This implies that morekids is positively correlated with the error. OLS estimator of morekids is positively biased.

part d

Command: reg morekids samesex, robust Description: Couples with two children of the same sex are 6.6% more likely to have additional child than couples with less than two children. This is significant because t=35.19 part e Relevant or not:- Samesex is correlated with morekids. Often others who have given birth to two sons or daughters may expect a different sex of the child in the third birth. Exogenous or not:- Sex of children are determined randomly thus it is not correlated with u. => samesex is a valid instrument

part f

Command: test samesex Description: F-stat = 1238.17 is very large and indicate that samesex is a strong instrument. part g

Command: ivregress 2sls weeksm1 (morekids = samesex), robust Description: 1% rise in fertility decreases labor supply by 6.31%, which is different from 5.387% in part b by approximately 1% so change is caused by the biased OLS.

part h

Command: reg weeksm1 samesex, robust Description: Coefficient of samesex is -0.426 and there is significant relationship between samesex and weeksworked. We can use the formula for IV estimate in relation to the covariances:

β1 = cov(Yi,Zi) / cov(Xi,Zi)

where Yi =weeksworked Xi =morekids Zi =samesex (instrumental variable for Xi)

part i

Command: ivregress 2sls weeksm1 agem1 black hispan othrace (morekids = samesex), robust Description: 1% rise in fertility decreases labor supply by 5.82% (6.31% in part g). There was omitted variable bias.

part j Relevant or not? Regression of morekids on support show that there is a relationship between them. When government provides support it works as a monetary incentive to childbearing. Exogenous or not?: Support is correlated with the regression error.

Support is not a valid instrument

Command: ivregress 2sls weeksm1 (morekids= support), robust

Command: ivregress 2sls weeksm1 (morekids= support) agem1 black hispan othrace, robust Description: Controlling yields coefficient -7.131, which makes proper sense after including these variables.

part k Description: The following results indicate rejection of null hypothesis that the instruments are exogenous. Support is correlated with the error term and therefore not exogenous so it is not a valid instrument

Command: ivregress 2sls weeksm1 (morekids= samesex support) , robust

Command: predict e, resid reg e samesex support, robust

Command: test samesex support