Suppose that you are interested in estimating the causal effect of X on Y; however, you are worried that your right-hand-side variable X is endogenously determined with your outcome variable Y. Further suppose that you have another variable Z that has the potential to be a good instrumental variable for X. Which of the following statements best describes how an instrument Z can be used to identify the causal effect of Xon Y? The instrument Z can serve as a proxy for the omitted variable that is causing the endogeneity problem. O The instrument Z isolates the exogenous variation in X from the endogenous variation in X. O The instrument Z cannot be used to identify the casual effect of X on Y because there is no solution to the endogeneity problem. The instrument Z can act as an additional right-hand-side variable and control for the endogeneity problem.

Suppose that you are interested in estimating the causal effect of X on Y; however, you are worried that your right-hand-side variable X is endogenously determined with your outcome variable Y. Further suppose that you have another variable Z that has the potential to be a good instrumental variable for X. Which of the following statements best describes how an instrument Z can be used to identify the causal effect of Xon Y? The instrument Z can serve as a proxy for the omitted variable that is causing the endogeneity problem. O The instrument Z isolates the exogenous variation in X from the endogenous variation in X. O The instrument Z cannot be used to identify the casual effect of X on Y because there is no solution to the endogeneity problem. The instrument Z can act as an additional right-hand-side variable and control for the endogeneity problem.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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