Instrumental Variables, Endogeneity, Regression, Linear Regression, Python.
combination of x_2 and z_3, and a constant (Image by Author) As before, x_3, x_2, z_3, and the error term ν are column vectors of size [n x 1]. Also, in Eq (1a), x_2 and z_3 are exogenous i.e. they are uncorrelated with ν. Substituting Eq (1a) into Eq (1): Substituting equation (1a) into (1) (Image