The IV regression assumptions include all of the following with the exception of A)the error terms must be normally distributed. B)E(ui | W₁_i,…, W_ri)= 0. C)Large outliers are unlikely: the X's, W's, Z's, and Y's all have nonzero, finite fourth moments. D)(X₁_i,…, X_ki, W₁_i,…,W_ri, Z₁_i, … Z_mi, Y_i)are i.i.d. draws from their joint distribution.

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Quizplus · Accepted Answer

The assumption that error terms must be normally distributed is not a requirement for IV (Instrumental Variables) regression. IV regression primarily focuses on the instrument being correlated with the endogenous explanatory variables and uncorrelated with the error term, among other assumptions, but it does not require the error terms to follow a normal distribution.

The IV Regression Assumptions Include All of the Following with the Exception