Regression equation with single regressor

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Reference no: EM1313149

Consider the regression model with a single regressor: Y₁ = β₀ + β₁β_i + u_i,

Suppose that the assumption in key concept are satisfied.

a. Show that X_i is a valid instrument. That is, show that key concept 12.3 is satisfied with Z_i = X_i.

b. Show that the IV regression assumptions in key concept 12.4 are satisfied with this choice of Z_i.

c. Shows that the IV estimator constructed using Zi = Xi is identical to the OLS estimator.

Reference no: EM1313149

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