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Lecture 16 Instrumental Variables W14

Lecture 16 Instrumental Variables W14 - Instrumental...

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Instrumental Variables Econ 140A Winter 2014
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Goals Instrumental Variables Simultaneous Equation Systems
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Endogeneity-Review Endogeneity problem: RHS variable is correlated with error We now assume ? has a random component Have to use plims to prove whether or not OLS estimator is consistent (asymptotically unbiased)
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Endogeneity-Review ? = ?? + ? ? is a random variable 𝑐?? ?, ? = 𝑠 𝑥𝜀 ≠ 0 What happens if we run OLS? Do we have a consistent estimator? ? = ∑?? ∑? 2 = ?? + ? ? ∑? 2 = ? + ∑𝜀𝑥 ∑𝑥 2 = ? + 1 𝑛 ∑𝜀𝑥 1 𝑛 ∑𝑥 2
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