Instrumental Variables regression uses instruments to A)establish the Mozart Effect. B)increase the regression R^2. C)eliminate serial correlation. D)isolate movements in X that are uncorrelated with u.

Question

Quizplus · Accepted Answer

Instrumental Variables regression is used to identify movements in the independent variable X that are uncorrelated with the error term u. This is done by using instruments, which are variables that are correlated with X but not correlated with u. Therefore, the correct choice is D.

Instrumental Variables Regression Uses Instruments to