At the end of Section 8.7, it is suggested that the OLS estimator could have a smaller mean squared error than the 2SLS estimator. Using (8-4), the results of Exercise 1, and Theorem 8.1, show that the result will be true if

How can you verify that this is at least possible? The right-hand-side is a rank one, nonnegative definite matrix.What can be said about the left-hand side?

Transcribed Image Text:

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