S4E03 Two-Stage Least Squares Strikes Back
Quantitude
00:00
The Endogeneity Problem
The mean of the estimated residuals are always zero. And the predictors are uncorrelated with the residuals. They have to be. There's a circularity. The reason they are is we're making that assumption, but that's just a sample base. So if you have X predicting Y and you get a gamma in your sample, if you have an endogeneity problem, that regression coefficient is going to be biased.
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