Question

Consider the following simple regression model: y = 0 + 1 x 1 + u. In order to obtain consistent estimators of 0 and 1, when x and u are correlated, a new variable z is introduced into the model which satisfies the following two conditions: Cov( z, x) 0 and Cov ( z, u) = 0. The variable z is called a(n) _____ variable. 答案选项组 dummy instrumental lagged dependent random

Answer 1

Answer:

Instrumental variable

Step-by-step explanation:

cov(z,u)  shows that the instrumental variable is exogenous. An instrumental variable can also be regarded as a third variable, It is included in the model if you have an issue of endogeneity in your regression model. An endogeneity problem arises if there are other variables are being influenced by other independent variable in the same regression model. we use z to account for these behaviours in the model. this variable controls for measurement errors as well as confounding errors.