Consider the following simple regression model: y = ₀ + ₁x₁ + u. Suppose z is an instrument for x. Which of the following conditions denotes instrument exogeneity? A)Cov(z,u) 0 B)Cov(z,x) 0 C) Cov(z,u) = 0 D) Cov(z,x) = 0

Question

Consider the following simple regression model: y = ₀ + ₁x₁ + u. Suppose z is an instrument for x. Which of the following conditions denotes instrument exogeneity? A)Cov(z,u) > 0 B)Cov(z,x) > 0 C) Cov(z,u) = 0 D) Cov(z,x) = 0

Quizplus · Accepted Answer

The condition Cov(z,u) = 0 denotes instrument exogeneity in this case.

Consider the Following Simple Regression Model: Y = 0

Consider the Following Simple Regression Model: Y = ₀