Consider the linear model y i = + x i + i in which Cov[x
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Consider the linear model yi = α + βxi + εi in which Cov[xi, εi] = γ = 0. Let z be an exogenous, relevant instrumental variable for this model. Assume, as well, that z is binary—it takes only values 1 and 0. Show the algebraic forms of the LS estimator and the IV estimator for both α and β.
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The matrices are X i x and Z iz For the OLS estimators we know from Chapter 2 that ...View the full answer
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