Consider the Following Simple Regression Model Y = ₀

question 1

Multiple Choice

Consider the following simple regression model y = ₀ + ₁x₁ + u. Suppose z is an instrument for x. Which of the following statements is true?

• A)The condition Cov(z,u) = 0 can be tested statistically.
• B)The condition Cov(z,x) 0 cannot be tested statistically.
• C) The instrumental variables estimator is always biased if Cov(x,u) 0.
• D) The ordinary least squares estimator is unbiased if Cov(x,u) 0 .

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