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...

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.