Question: A classmate is interested in estimating the variance of the error term in Equation (12.1). a. Suppose that she uses the estimator from the second-stage

A classmate is interested in estimating the variance of the error term in Equation (12.1).
a. Suppose that she uses the estimator from the second-stage regression of TSLS:

where Xi is the fitted value from the first-stage regression. Is this estimator consistent? (For the purposes of this question suppose that the sample is very large and the TSLS estimators are essentially identical to Î²0 and Î²1.)
b. Is

consistent?

- (- TSLS TSLS

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