Which of the following is not a desirable characteristic in an instrumental variable,z,to be used in IV/2SLS estimation?
A)cov (z,e)= 0
B)z is unrelated to y
C)high correlation between z & x
D)normally distributed z

Question

Quizplus · Accepted Answer

An instrumental variable (IV) should be correlated with the endogenous explanatory variable (x) and uncorrelated with the error term (e). The distribution of the IV (whether normally distributed or not) is not a requirement for it to be a valid instrument.

Which of the Following Is Not a Desirable Characteristic in an Instrumental