Question: Consider the model Y X0e with E[e j Z] 0 with Y scalar and X and Z each a k vector. You have

Consider the model Y Æ X0¯Åe with E[e j Z] Æ 0 with Y scalar and X and Z each a k vector. You have a randomsample (Yi ,Xi ,Zi : i Æ 1, ...,n).

(a) Assume that X is exogenous in the sense that E[e j Z,X] Æ 0. Is the IV estimator b¯iv unbiased?

(b) Continuing to assume that X is exogenous, find the conditional covariance matrix var

£ b¯iv j X ,Z

¤

.

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