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Introductory Econometrics 4th Edition by Jeffrey Wooldridge
Edition 4ISBN: 978-0324660609Introductory Econometrics 4th Edition by Jeffrey Wooldridge
Edition 4ISBN: 978-0324660609 Exercise 18
Refer to equations 
and 
. Assume that u = x , so that the population variation in the error term is the same as it is in x. Suppose that the instrumental variable, z, is slightly correlated with u: Corr(z,u) =.1. Suppose also that z and x have a somewhat stronger correlation: Corr(z,x) =.2.
(i) What is the asymptotic bias in the IV estimator
(ii) How much correlation would have to exist between x and u before OLS has more asymptotic bias than 2SLS
and . Assume that u = x , so that the population variation in the error term is the same as it is in x. Suppose that the instrumental variable, z, is slightly correlated with u: Corr(z,u) =.1. Suppose also that z and x have a somewhat stronger correlation: Corr(z,x) =.2.(i) What is the asymptotic bias in the IV estimator
(ii) How much correlation would have to exist between x and u before OLS has more asymptotic bias than 2SLS
Explanation
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(i)
Given that 
When, This implies, He...
Introductory Econometrics 4th Edition by Jeffrey Wooldridge
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