ProblemSet10 - Professor Mumford [email protected] Econ...

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Professor Mumford Econ 360 - Fall 2010 [email protected] Problem Set 10 (Advanced Topic: Instrumental Variables) Due at the beginning of class on Thursday, December 2 True/False (24 points) Please write the entire word. No explanations are required. 1. Consider the regression model y = β 0 + β 1 x + u , where z is a potential instrument for x . In order for z to be a valid instrument, it must be the case that x and u are uncorrelated. 2. Consider the regression model y = β 0 + β 1 x + u , where z is a potential instrument for x . In order for z to be a valid instrument, it must be the case that z and u are uncorrelated. 3. Consider the regression model y = β 0 + β 1 x + u , where z is a potential instrument for x . In order for z to be a valid instrument, it must be the case that z and x are uncorrelated. 4. Consider the regression model y = β 0 + β 1 x + u , where z is an instrument for x . If z is a valid instrument for x we replace x with z in the regression model in order to obtain a consistent estimate of β 1 .
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