S4E03 Two-Stage Least Squares Strikes Back
Quantitude
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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