The logic of control variables in IV regressions
A)parallels the logic of control variables in OLS
B)only applies in the case of homoskedastic errors in the first stage of two stage least squares estimation
C)is different in a substantial way from the logic of control variables in OLS since there are two stages in estimation
D)implies that the TSLS is efficient

Question

Quizplus · Accepted Answer

The logic of control variables in instrumental variables (IV) regressions parallels that of ordinary least squares (OLS) in that both aim to control for confounding variables that may affect the dependent variable, thereby isolating the effect of the independent variable of interest. The presence of two stages in IV estimation does not fundamentally alter the logic of including control variables; it's primarily a method to address endogeneity.

The Logic of Control Variables in IV Regressions