Which of the Following Best Characterizes the Conditions for a Good

Multiple Choice

Which of the following best characterizes the conditions for a good instrument?

A) Z is statistically significant in the first-stage and exerts a direct effect on Y.
B) Z is statistically significant in the first-stage and exerts no direct effect on Y.
C) Z is uncorrelated with both X and Y.
D) Z needs to be included in both stages in order for 2SLS to be appropriate.