(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 irelevant. (c) Explain how you would test statistically the assumption that the instruments are exogenous.

Glencoe Algebra 1, Student Edition, 9780079039897, 0079039898, 2018
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ISBN:9780079039897
Author:Carter
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Chapter10: Statistics
Section10.1: Measures Of Center
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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 null hypothesis that all the instruments are irrelevant.
(c) Explain how you would test statistically the assumption that the instruments are exogenous.
Transcribed Image 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.
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