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z2and z3 are uncorrelated with the error u1 are known as are known as exclusion restrictions
What is Exclusion Restrictions?
Most undergraduate econometric curricula cover the use of instrumental variables as a typical method for determining a variable's causal relationship to another variable. The fundamental tenet of the approach is that it can be applied in circumstances when a source of exogenous variation in X cannot be identified. Instead, a third variable called the instrument, Z, is utilized, where Z only influences Y by acting through X.
When estimating outcomes using instrumental variables (IV) or exogenous variables, which are used in many fields of research, including statistics and economics, researchers rely on proper exclusion limits.
the assumptions that z2 and z3 do not appear in the model
Hence z2and z3 are uncorrelated with the error u1 are known as are known as exclusion restrictions.
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