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The Two Conditions for Instrument Validity Are corr(Zi,Xi)0 and corr(Zi,ui)=0\operatorname { corr } \left( Z _ { i } , X _ { i } \right) \neq 0 \text { and } \operatorname { corr } \left( Z _ { i } , u _ { i } \right) = 0

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The two conditions for instrument validity are corr(Zi,Xi)0 and corr(Zi,ui)=0\operatorname { corr } \left( Z _ { i } , X _ { i } \right) \neq 0 \text { and } \operatorname { corr } \left( Z _ { i } , u _ { i } \right) = 0
The reason for the inconsistency of OLS is that corr(Xi,ui)0\operatorname { corr } \left( X _ { i } , u _ { i } \right) \neq 0
But if X and Z are correlated, and X and u are also correlated, then how can Z and u not be correlated? Explain.

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