Covariance, bernoulli distribution and instrumental variables

by leo   Last Updated January 12, 2018 20:19 PM

my problem is from the following book on page 94 (

They say the covariance between a single dummy instrument variable (z), which is one with probability p, and the dependent variable (y) is: Cov(y,z) = (E(y I z=1) - E(y I z=0))p(1-p). They say this is easy to show, but i cant figure it out. I tried using the usual covariance formulas, but it didnt help. Does anybody know an answer?

Related Questions

Wald estimator and 2 stages least squared

Updated January 17, 2018 21:19 PM

why is 2SLS with dummys the same as GLS on group means?

Updated February 10, 2018 21:19 PM

instrumental variables covariance

Updated January 03, 2018 21:19 PM

Variance and Covariance of regressors

Updated January 09, 2018 21:19 PM