Essay
The two conditions for instrument validity are corr(Zi,Xi)≠ 0 and corr(Zi,ui)= 0.The reason for the inconsistency of OLS is that corr(Xi,ui)≠ 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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The introduction to Chapter 10 on instru...View Answer
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