Explain why it is important for an instrumental variable to be highly correlated with the random explanatory

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Explain why it is important for an instrumental variable to be highly correlated with the random explanatory variable for which it is an instrument.

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Principles Of Econometrics

ISBN: 9781118452271

5th Edition

Authors: R Carter Hill, William E Griffiths, Guay C Lim

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Question Posted: Mar 30, 2024 10:49 AM

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Explain why it is important for an instrumental variable to be highly correlated with the random explanatory

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Instrumental variables IVs are used in econometrics to address endogeneity which occurs when the explanatory variable of interest is correlated with the error term in a regression model In order for a...View the full answer

Principles Of Econometrics

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