Consider the Following Simple Regression Model Y = β₀

question 7

Multiple Choice

Consider the following simple regression model y = β₀ + β₁x₁ + u and z is an instrument for x. Suppose x and z are both positively correlated with u and Corr(z,x) > 0. Then, the asymptotic bias in the IV estimator is less than that for OLS only if:​

• A)​Corr(z,u)/ Corr(z,x) = Corr(x,u).
• B)​Corr(z,u)/ Corr(z,x) > Corr(x,u).
• C)​Corr(z,u)/ Corr(z,x) < Corr(x,u).
• D)​Corr(z,u)/ Corr(z,x) ≠ Corr(x,u).

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