ECONOMETRICS: Consider the simple linear regression Y = a + b*X + u a. Explain what an instrumental variable is, and provide a clear explanation of what conditions must be met for Z to be a valid IV for X. Explain how we can or cannot tell if each of these conditions is met.

Linear Algebra: A Modern Introduction
4th Edition
ISBN:9781285463247
Author:David Poole
Publisher:David Poole
Chapter2: Systems Of Linear Equations
Section2.4: Applications
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ECONOMETRICS: Consider the simple linear
regression Y = a + b*X + u
a. Explain what an instrumental variable is, and
provide a clear explanation of what conditions
must be met for Z to be a valid IV for X. Explain
how we can or cannot tell if each of these
conditions is met.
Transcribed Image Text:ECONOMETRICS: Consider the simple linear regression Y = a + b*X + u a. Explain what an instrumental variable is, and provide a clear explanation of what conditions must be met for Z to be a valid IV for X. Explain how we can or cannot tell if each of these conditions is met.
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