Question 4. Suppose you have a model with one endogenous regressor (Xi) and three instruments (Z1i , Z2i , Z3i). You are

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Question 4. Suppose you have a model with one endogenous regressor (Xi) and three instruments (Z1i , Z2i , Z3i). You are

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Question 4. Suppose you have a model with one endogenous
regressor (Xi) and three instruments (Z1i , Z2i , Z3i). You are
interested in estimating β1 in the regression equation Yi = β0 +
β1Xi + ui .
a) Explain how you can test for instrument relevance. Give
details.
b) You perform a J-test for overidentifying restrictions and
obtain the J-statistic. What is the asymptotic distribution of this
statistic in this example?
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