In order for a variable to be a valid instrumental variable it needs to satisfy which two conditions?
A) Exogenous and consistent
B) Efficient and uncorrelated
C) Relevant and exogenous
D) Relevant and efficient

Question

Quizplus · Accepted Answer

An instrumental variable must be relevant, meaning it is correlated with the endogenous explanatory variable, and exogenous, meaning it is not correlated with the error term in the regression model.

In Order for a Variable to Be a Valid Instrumental