For W to be an effective control variable in IV estimation,the following condition must hold
A)E(ui)= 0
B)E(ui|Zi,Wi)= E(ui|Wi)
C)E(uiuj)≠ 0
D)there must be an intercept in the regression

Question

Quizplus · Accepted Answer

For W to be an effective control variable in IV estimation, it should satisfy the conditional independence assumption which is represented by E(ui|Zi,Wi)= E(ui|Wi), meaning that the error term should not be correlated with the instrument (Zi) after controlling for the control variable (Wi).

For W to Be an Effective Control Variable in IV