Sumera Nawaz ECONOMICS   -   Econometrics

What is the primary purpose of using Instrumental Variables (IV) in econometrics?

Instrumental Variables (IV) are used in econometrics to address endogeneity problems, which occur when an explanatory variable is correlated with the error term. IVs help in obtaining consistent estimates by providing a source of variation that is correlated with the endogenous explanatory variable but uncorrelated with the error term.
When is the use of a fixed-effects model preferable to a random-effects model in panel data analysis? What is the primary purpose of using Instrumental Variables (IV) in econometrics? Which test is commonly used to detect autocorrelation in the residuals of a regression model? How to address heteroskedasticity in a regression model? Why is multicollinearity a problem in multiple regression analysis?