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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,.

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,.

MATLAB: An Introduction with Applications
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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Consider the following cross-sectional population regression model relating the dependent variable Y, and regressor X,: Y, = Ba + BIX, + tti, where i = 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.
Transcribed Image Text:Consider the following cross-sectional population regression model relating the dependent variable Y, and regressor X,: Y, = Ba + BIX, + tti, where i = 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.
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