Question 4 (25 Marks) a) Discuss when the use of instrumental variable estimator is appropriate. (4 marks) b) Proof that if $cov(X_i, u_j) = 0$, then OLS estimators are unbiased and efficient. (10 marks) c) What are implications if the researcher uses OLS estimator when $cov(X_i, u_j) \neq 0$. (5 marks) d) Discuss the reasons for correlation between regressors and error term. (6 marks)

          Question 4 (25 Marks)
a) Discuss when the use of instrumental variable estimator is appropriate. (4 marks)
b) Proof that if $cov(X_i, u_j) = 0$, then OLS estimators are unbiased and efficient.
(10 marks)
c) What are implications if the researcher uses OLS estimator when $cov(X_i, u_j) \neq 0$.
(5 marks)
d) Discuss the reasons for correlation between regressors and error term. (6 marks)

Question 4 (25 Marks)
a) Discuss when the use of instrumental variable estimator is appropriate. (4 marks)
b) Proof that if cov(Xi, uj) = 0, then OLS estimators are unbiased and efficient.
(10 marks)
c) What are implications if the researcher uses OLS estimator when cov(Xi, uj) ≠ 0.
(5 marks)
d) Discuss the reasons for correlation between regressors and error term. (6 marks)

Added by Nicole M.

Principles of Economics

Gregory Mankiw 8th Edition

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a) Discuss when the use of instrumental variable estimator is appropriate. (4 marks) b) Prove that if cov (Xi,ui) = 0, then OLS estimators are unbiased and efficient. (10 marks) c) What are the implications if the researcher uses OLS estimator when cov (Xi,uj) â‰ 0? (5 marks) d) Discuss the reasons for correlation between regressors and error term. (6 marks)