Lecture_20_Prof._Arkonac's_Slides_(Ch_12.2_on)_Fall_10 -...

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Instrumental Variable Regression II (Fall 2010) Lecture 20 Seyhan Erden Arkonac, PhD Problem Set 8 is posted, it is due on Tuesday, November 23rd 1
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2 The General IV Regression Model (SW Section 12.2) So far we have considered IV regression with a single endogenous regressor ( X ) and a single instrument ( Z ). We need to extend this to: multiple endogenous regressors ( X 1 ,…, X k ) multiple included exogenous variables ( W 1 ,…, W r ) These need to be included for the usual OV reason multiple instrumental variables ( Z 1 ,…, Z m ) More (relevant) instruments can produce a smaller variance of TSLS: the R 2 of the first stage increases, so you have more variation in ˆ X . Terminology: identification & overidentification
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