Question: Consider a linear model with an explanatory variable that may be endogenous. We have a random sample to estimate the causal relationship between the explained

Consider a linear model with an explanatory variable that may be endogenous. We have a random sample to estimate the causal relationship between the explained and explanatory variable using an instrument that satisfies the conditions of exogeneity and relevance. a

.

With the information available, derive an expression for the slope parameter of the model in terms of the covariances of the instrumental variable with the explained and explanatory variable

(70 %) .

From this expression, provide a consistent estimator of the slope parameter of the model

(30 %) .

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