The estimation of an instrumental variable model requires:
A) Allows only one endogenous regressor.
B) Requires exact identification
C) Requires exact identification or overidentificaion
D) Requires more endogenous variables than instruments.

Question

Quizplus · Accepted Answer

An instrumental variable model can be estimated with exact identification or overidentification. Exact identification occurs when there are at least as many instruments as endogenous variables. Overidentification occurs when we have more instruments than endogenous variables. Option A is incorrect as instrumental variables models can have more than one endogenous variable. Option B is incorrect as IV models do not necessarily require exact identification. Option D is incorrect as we need more instruments than endogenous variables, not the other way around.

The Estimation of an Instrumental Variable Model Requires