Consider the following cross-sectional population regression model relating the dependent variable Y, and regressor X,: Y, = Ba + BIX, + tti, where i = 1., and X, = Y, + Z. Assume that Cov(Z,u,) = 0....

Consider the following cross-sectional population regression model relating the<br>dependent variable Y, and regressor X,:<br>Y, = Ba + BIX, + tti, where<br>i = 1., and X, = Y, + Z.<br>Assume that Cov(Z,u,) = 0.<br>(a) Explain why X, is an endogenous regressor.<br>(b) Show that Z; is a relevant instrument for X.<br>

Extracted text: Consider the following cross-sectional population regression model relating the dependent variable Y, and regressor X,: Y, = Ba + BIX, + tti, where i = 1., and X, = Y, + Z. Assume that Cov(Z,u,) = 0. (a) Explain why X, is an endogenous regressor. (b) Show that Z; is a relevant instrument for X.

Jun 04, 2022

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Consider the following cross-sectional population regression model relating the dependent variable Y, and regressor X,: Y, = Ba + BIX, + tti, where i = 1., and X, = Y, + Z. Assume that Cov(Z,u,) = 0....

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