Introductory Econometrics 4th Edition by Jeffrey Wooldridge

Exercise 20

In the model with one endogenous explanatory variable, one exogenous explanatory variable, and one extra exogenous variable, take the reduced form for y 2 , , and plug it into the structural equation . This gives the reduced form for y 1 :
y 1 = 0 + 1 Z 1 + 2 Z 2 + V
Find the j. in terms of the j and the j.
(ii) Find the reduced form error, v 1 , in terms of u 1 , v 2 , and the parameters.
(iii) How would you consistently estimate the a j