STUDENT SOLUTIONS MANUAL

Chapter 1 The Nature of Econometrics and Economic Data

Chapter 2 The Simple Regression Model
Chapter 3 Multiple Regression Analysis: Estimation
Chapter 4 Multiple Regression Analysis: Inference
Chapter 5 Multiple Regression Analysis: OLS Asymptotics
Chapter 6 Multiple Regression Analysis: Further Issues
Chapter 7 Multiple Regression Analysis with Qualitative Information: Binary (or Dummy)
Variables
Chapter 8 Heteroskedasticity
Chapter 9 More on Specification and Data Problems
Chapter 10 Basic Regression Analysis with Time Series Data
Chapter 11 Further Issues in Using OLS with Time Series Data
Chapter 12 Serial Correlation and Heteroskedasticity in Time Series Regressions
Chapter 13 Pooling Cross Sections Across Time. Simple Panel Data Methods
Chapter 14 Advanced Panel Data Methods
Chapter 15 Instrumental Variables Estimation and Two Stage Least Squares
Chapter 16 Simultaneous Equations Models
Chapter 17 Limited Dependent Variable Models and Sample Selection Corrections
Chapter 18 Advanced Time Series Topics
Chapter 19 Carrying Out an Empirical Project
Appendix A Basic Mathematical Tools
Appendix B Fundamentals of Probability
Appendix C Fundamentals of Mathematical Statistics
Appendix D Summary of Matrix Algebra
Appendix E The Linear Regression Model in Matrix Form 2

PREFACE
This manual contains solutions to the odd-numbered problems and computer exercises offered
separately online for Introduction to Econometrics: Europe, Middle East and Africa Edition, and
suggestions for how to modify or extend the problem.

Hopefully, you will find that the solutions are detailed enough to act as a study supplement to the
text. Rather than just presenting the final answer, I usually provide detailed steps, emphasizing
where the chapter material is used in solving the problems.

Some of the answers given here are subjective, and you or your instructor may have perfectly
acceptable alternative answers or opinions.
The solutions to the computer exercises were obtained using StataÒ, starting with version 4.0 and
ending with version 8.0. Nevertheless, almost all of the estimation methods covered in the text
have been standardized, and different econometrics or statistical packages should give the same
answers to the reported degree of accuracy. There can be differences when applying more
advanced techniques, as conventions sometimes differ on how to choose or estimate auxiliary
parameters. (Examples include heteroskedasticity-robust standard errors, estimates of a random
effects model, and corrections for sample selection bias.) Any differences in estimates or test
statistics should be practically unimportant, provided you are using a reasonably large sample
size.

While I have endeavoured to make the solutions free of mistakes, some errors may have crept in.
I would appreciate hearing from students who find mistakes, or from those who have suggestions
for improving either the solutions or the problems themselves.

I hope that you find this solutions manual helpful when used in conjunction with the text. I look
forward to hearing from you.

Jeffrey M. Wooldridge
Department of Economics
Michigan State University
East Lansing, MI
48824-1038