Which of the following statements is true regarding var when estimated by IV using z as an instrument for x? A)instrumental variable estimation leads to larger variance of estimates compared to OLS B)instrumental variable estimation leads to smaller variance estimates compared to OLS C)the variance of the IV estimates can be larger or smaller than OLS,depending on r²_xz D)there is no way to know which estimator leads to estimates with a larger variance,it depends on the data

Question

Quizplus · Accepted Answer

CInstrumental variable (IV) estimation often leads to larger variance of estimates compared to ordinary least squares (OLS) because it uses less information about the variables being estimated. The variance of the IV estimates can indeed be larger or smaller than those from OLS, depending on the strength of the instrument (as indicated by the correlation between the instrument z and the endogenous variable x), among other factors.

Which of the Following Statements Is True Regarding Var When