Question 2: (a) Describe how instrumental variable (IV) regression can eliminate the bias when E(u | X)# 0, where u is a zero-mean error term and X is a regressor. (b) Explain how you would test the...

Question 2:<br>(a) Describe how instrumental variable (IV) regression can eliminate the bias when E(u | X)# 0,<br>where u is a zero-mean error term and X is a regressor.<br>(b) Explain how you would test the null hypothesis that all the instruments are irrelevant.<br>(c) Explain how you would test statistically the assumption that the instruments are exogenous.<br>

Extracted text: Question 2: (a) Describe how instrumental variable (IV) regression can eliminate the bias when E(u | X)# 0, where u is a zero-mean error term and X is a regressor. (b) Explain how you would test the null hypothesis that all the instruments are irrelevant. (c) Explain how you would test statistically the assumption that the instruments are exogenous.

Jun 02, 2022

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Question 2: (a) Describe how instrumental variable (IV) regression can eliminate the bias when E(u | X)# 0, where u is a zero-mean error term and X is a regressor. (b) Explain how you would test the...

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