Consider the following simple regression model y=β₀+ β₁x₁+ u.Suppose z is an instrument for x. Which of the following statements is true? A)The condition Cov(z,u)= 0 can be tested statistically. B)The condition Cov(z,x)≠ 0 cannot be tested statistically. C)The instrumental variables estimator is always biased if Cov(x,u)≠0. D)The ordinary least squares estimator is unbiased if Cov(x,u)≠0.

Question

Quizplus · Accepted Answer

The instrumental variables estimator is used to address the bias that arises when Cov(x,u)≠0, making it a suitable method in such cases.

Consider the Following Simple Regression Model Y=β0+ β1x1+ U

Consider the Following Simple Regression Model Y=β₀+ β₁x₁+ U