Instrumental Variables, Endogeneity, Regression, Linear Regression, Python.
transformed into the following model: The linear model with the endogenous variable x_3 replaced with the variable z_3 (Image by Author) Recollect that x_2 and z_3 are each assumed to be uncorrelated ν and ϵ. Hence they are also uncorrelated with the composite error ϵ*. Thus, in Eq (1b), all