In order to statistically verify that an instrument satisfies the exclusion condition, we can:
A) Run a regression of the instrument against the dependent variable of interest.
B) Run a regression of the instrument against the independent variable of interest.
C) There is no way to statistically satisfy the exclusion condition.
D) Run an overidentification test.

Question

Quizplus · Accepted Answer

The exclusion condition cannot be statistically verified because it is an assumption that the instrument affects the dependent variable only through the independent variable, and not directly.

In Order to Statistically Verify That an Instrument Satisfies the Exclusion