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IV. Econometric Theory Suppose that: Y=a+BX+yZ+e, (4) Suppose that X is correlated with e, , and you want to use Z, as an instrument for

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IV. Econometric Theory Suppose that: Y=a+BX+yZ+e, (4) Suppose that X is correlated with e, , and you want to use Z, as an instrument for X, , with a first-stage relationship given by: X = a+b Z +u (5) Under what conditions will IV give an unbiased estimate of B ? Prove your answer, based on the lecture notes and recorded lectures

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