The IV estimator can be used to potentially eliminate bias resulting from
A)multicollinearity.
B)serial correlation.
C)errors in variables.
D)heteroskedasticity.

Question

Quizplus · Accepted Answer

The IV estimator can help to eliminate bias resulting from errors in variables, which occur when the independent variables in a regression model are measured with error or are endogenous (correlated with the error term). This bias can be particularly problematic in cases where the independent variables are correlated with the error term, as it can cause standard estimators to be inconsistent. By using an instrument variable that is correlated with the independent variable of interest but uncorrelated with the error term, the IV estimator can help to provide a consistent estimate of the true effect of the independent variable. However, the IV estimator is not designed to address issues of multicollinearity, serial correlation, or heteroskedasticity, which may require different approaches for bias reduction.

The IV Estimator Can Be Used to Potentially Eliminate Bias