5 Consider the following cross-sectional population regression model relating thedependent variable Y, and regressor X,:Y, = Ba + BIX, + tti, wherei = 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.

Yi=β0+β1.Xi+uii=1,....,nXi=Yi+ZiCov(Zi,Ui)=0

Answered: dependent variable Y, and regressor X,…

MATLAB: An Introduction with Applications

6th Edition

ISBN:9781119256830

Author:Amos Gilat

Publisher:Amos Gilat

Chapter1: Starting With Matlab

Section: Chapter Questions

Problem 1P

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dependent variable Y, and regressor X, : Y, = ßa + BIX, + t1. where i- 1.n, and X, = Y, + Z,. Assume that Cor{Z,u,) = 0. (a) Explain why X, is an endogenous regressor. (b) Show that Z, is a relevant instrument for X,.