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Suppose that a fad for oats (resulting from the announcement of the health benefits of oat bran) has made you toy with the idea of becoming a broker in the oat market. Before spending your money, you decide to build a simple model of supply and demand (identical to those in Sections 14.1 and 14.2) of the market for oats: QDt=0+1Pt+2YDD+DtQSt=0+1Pt+2Wt+StQDL=QSt where QD - the quantity of oats demanded in time period t Qst= the quantity of oats supplied in time period t Pl= the price of oats in time period t Wi= average oat-farmer wages in time period t YDt= disposable income in time period t The datafile is OATS14. (a) In this simultaneous equations system, what variables are endogenoua? What variables are exogenous? (b) You notice that no left-hand-side variable appears on the right side of either of your stochastic simultaneous equations. Does this mean that OLS estimation will enconnter uo simultaneity bias? Why or why not? (c) Eatimate the supply and demand equations using OLS. Print out the original Stata outputs, and then reorganize your Stata regression results and put them into the standard format presented in Equation 3.4. (d) Fstimate the supply and demand equations using 2SLS. Print ont the original Stata ontputs, and then reorganize your Stata regression results and put them into the standard format presented in Equation 3.4. (Hint: For the demand equation, use Wl as an instrumental variable for P;; for the supply equation, use YDt as an instrumental variable for Pl )

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