The Two Conditions for Instrument Validity Are Corr(Z_i, X_i)≠ 0

question 47

Essay

The two conditions for instrument validity are corr(Z_i, X_i)≠ 0 and corr(Z_i, u_i)= 0. The reason for the inconsistency of OLS is that corr(X_i, u_i)≠ 0. But if X and Z are correlated, and X and u are also correlated, then how can Z and u not be correlated? Explain.

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Definitions:

Hostile Work Environment

A workplace characterized by severe or pervasive harassment that creates an intimidating, offensive, or abusive atmosphere for employees.

Harassment

Behavior intended to disturb or upset that is repeated and unwanted, often creating a hostile or intimidating environment.

Gender

A social construct that refers to roles, behaviors, activities, expectations, and societal norms attributed to males and females or other identities.

At-Will Employment

A term of employment allowing either the employer or the employee to end the employment relationship at any time without prior notice.