st: design issue

["a.carrozzone@libero.it" <a.carrozzone@libero.it>]

Dear statalist,

I have a research design doubt. 

I am considering the following model and the focus of the analysis is on a2:

y=a1*x+a2*(x*z)+a3*z+e

where z is a dummy variable

Economic theory also suggests that:

x=b1*z+v

If I find collinearity between x and z to be ok, can I estimate the first 
equation with OLS and disregard the second equation? 

My view is that I can safely use OLS only if cov(e,v)=0, but how can I test 
this condition?

Thanks a lot,


Andrea

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