Instrumental variables cannot be used for estimating a regression equation if the regression model suffers from the measurement error problem.

Question

Quizplus · Accepted Answer

Instrumental variables can still be used to estimate a regression equation even if the regression model suffers from the measurement error problem, as long as the instrumental variable is correctly chosen to be correlated with the endogenous explanatory variable but uncorrelated with the error term, including the measurement error.

Instrumental Variables Cannot Be Used for Estimating a Regression Equation