Questions tagged [2sls]
Two-stage least squares is a regression technique from econometrics used in instrumental variables analysis.
161
questions
1
vote
0
answers
6
views
How to evaluate the effect of each group in dummy D to endogenous variable X in 2SLS regression?
I have a question in terms of evaluating the effect of a dummy $D$ to endogenous variable $X$ in two-stage least squares (2SLS) regression.
Suppose I have dependent variable $Y$, endogenous variable $...
- 11
1
vote
0
answers
18
views
Discrepancy in 2SLS Estimation Results
I've been exploring the 2SLS (Two-Stage Least Squares) estimation method to analyze a model involving endogeneity and instrumental variables. To better understand the process, I performed manual ...
- 11
0
votes
0
answers
26
views
The magnitude of an two-stages least squares coefficient is always larger than the ordinary least squares coefficient?
I have a hard time wrapping my head around this. I know that in case of measurement errors, the OLS estimate is biased downwards zero. Omitted variables can bias the explanatory variable of interest ...
anon
0
votes
0
answers
27
views
Which model to choose (OLS, fixed-effects, 2SLS, random-effects) in R?
I want to perform an analysis on my panel data, but I have troubles finding the best model for my analysis.
I performed an F-test to detect whether the pooled OLS or the fixed effects is more suitable....
- 13
0
votes
1
answer
25
views
IVs: would this rainfall specification cut it?
I need feedback to check whether rainfall is an appropriate instrumental variable. Before you boo me out, hear what I have to say.
There are two countries: A and B. A and B are 2000 miles apart.
My ...
- 111
0
votes
1
answer
41
views
2SLS with endogenous variable $X_1$ and interaction terms $X_1 \times X_2$, $X_2$ exogenous
I would like clarification on the correct way to set up the first-stage regression(s) for a hypothetical 2SLS regression. Say we have the following formula:
\begin{align}
y = x_1 + x_2 + x_1 \...
0
votes
1
answer
39
views
Instrumental variable identifiability in a linear setting in the presence of unobserved confounders
Long story short, I'm seeing in the literature that linear instrumental variables models are identifiable, even in the presence of unobserved confounders. The unobserved confounding aspect befuddles ...
- 317
3
votes
0
answers
150
views
When is an instrument too strong in the first stage?
Instrumental variable regression is estimated with ivreg in R. ivreg provides diagnostics with the ...
- 316
4
votes
1
answer
50
views
Can a variable be an instrument in the first stage and an exogenous covariate in the second stage of an 2SLS regression?
I have two equations of the form:
$y = X\beta + Z\gamma + r\alpha +\epsilon_1$ (1)
$r = Z\delta +\epsilon_2$ (2)
The basic intuition here is $y$ is total cost data, $X$ is a matrix of variables ...
- 41
0
votes
0
answers
10
views
Do I add interaction term already in the first stage model (2SLS)?
I am calculating a 2SLS in R-Studio. I have a variable of interest Y, an endogenous Variable E, the instrument Z and three exogenous variables . My theory is that the effect of X (Z respectively) on Y ...
- 11
0
votes
0
answers
150
views
Can I have an interaction-term between the predicted endogenous variable and other exogenous variables in the second stage Modell of a 2SLS?
I have a question regarding 2SLS and interaction-terms between the predicted endogenous variable and a set of exogenous variables (second stage).
I want to calculate the effect of an endogenous ...
- 11
0
votes
0
answers
77
views
2-stage least squares (2SLS) with 0th-stage Probit correction: Additional fixed effects in 2SLS
I am dealing with a binary endogenous variable and thus trying to use a 2SLS model with Probit correction in the preliminary ("0th") stage, a procedure described in Wooldridge (2002; p.623, ...
- 1
1
vote
0
answers
45
views
Two questions about Interaction-terms in IV-regressions (2SLS) in R
I am doing a 2SLS-model in R with panel data (n=800), where I want to include an interaction-term as Instrumental-Variable in the first-stage model. My first question is: Does that even make sense? ...
- 11
0
votes
0
answers
37
views
ECM long-run elasticity with one I(2) variable
I am estimating a 2SLS using a time series simultaneous equation ECM. The purpose is to estimate the price elasticity of electricity demand. Assume that both price and demand are I(1) variables, ...
- 33
0
votes
0
answers
64
views
Instrumental Variables will not pass the F test
I am doing a 2SLS to work out the relationship between crime and real wages across different regions, with time and unit dummies included for fixed effects.
I have tried several different variables as ...
- 1
0
votes
1
answer
221
views
Manually calculate robust standard errors of 2SLS regression
I used the "systemfit" function in R to estimate a 2SLS model as it allows to specify the first and second stage separately which is important for my estimation. I need robust standard ...
- 1
1
vote
1
answer
48
views
Should I take logarithm of weights in WLS regressions
I am new here.
I have a question regarding the anlaytical weights used in ivreghdfe or reghdfe regressions. People usually take aweights in STATA, my question is how we deal with the weight if the ...
- 11
1
vote
1
answer
62
views
What's the difference between exogenous and endogenous identifiers?
What's the difference? Exogenous vs. Endogenous identifiers.
- 23
2
votes
0
answers
47
views
Are standard errors from a second stage with OLS always underestimated? [duplicate]
I use Stata. I build on Standard errors of a two stage least squares regression, Stata to compute manually the standard errors for my model:
I cannot use standard packages (ivreg2 etc.) as the second ...
- 21
0
votes
0
answers
105
views
Independent 2SLS not matching up with plm package in R?
I am attempting to run a two stage least squares IV regression, where I have one endogenous variable (x1) and four instruments (z1, z2, z3, z4). I have panel data and am thus attempting to control for ...
- 1
1
vote
0
answers
82
views
What is the 2SLS bias with a zero first stage in instrument analysis
I am trying to understand the impact in the IV estimate when zero coefficient is obtained in the first stage.
- 11
0
votes
0
answers
60
views
Is correct to use logit link, binomial family in both first and second stage 2SLS?
The R package "ivtools" gave this example, but someone told me 2SLS is only applicable to probit link on binary dependent variables.
...
user318514
0
votes
0
answers
22
views
$z$ is the endogenous variable, and $x_1$ and $x_2$ are the instruments in this probit 2SLS model?
Given a probit model ${ }^{[1]} y=1\left[y^*>0\right]$ where $y^*=x_1 \beta+z \overline{0}+u$, and $u \sim N(0,1)$, without losing generality, $z$ can be represented as $z=x_1 \theta_1+x_2 \theta_2+...
user318514
1
vote
0
answers
212
views
Can you use two stage least squares (instruments) on an endogenous categorical variable (Likert scale)?
I have an endogenous categorical variable (exlanatory variable) measured on a Likert scale (from 1-4) and I would like to instrument it via 2sls. I am wondering if this is a theoretically correct ...
- 15
1
vote
1
answer
74
views
Is my instrumental variable too noisy?
I have an instrument, that I want to use with IV 2SLS, to predict my endogenous variable.
The scatter plot of my instrument against my endogenous variable looks like this.
Using Stata's binscatter, I ...
- 31
1
vote
0
answers
205
views
2sls second stage statistically insignificant
i conducted a two stage least square regression. The coefficients of my first stage are statistically significant, but my second stage is not. How can i interpretate this? My F-Statistic of the second ...
- 11
6
votes
1
answer
429
views
Prediction of the 1st stage in 2SLS not important?
My question was sparked by the discussion Why is the functional form of the 1st stage in 2SLS not important?
I understand that in the first-stage we aim to predict our endogenous variable ($\hat{x}$), ...
- 65
1
vote
1
answer
225
views
Why not simply use your instrumental variable as your independent variable?
I'm a little confused as to why we need to go through an entire two-stage regression process to capture the effect of our instrumental variable on our independent variable, and then only use this ...
3
votes
0
answers
73
views
Why is ignoring prediction error not a concern in instrumental variables?
In his book, Statistical Rethinking (2nd edition, p. 137), Richard McElreath states that including parameters with unobserved values, such as residuals, and treating them as if they were perfectly ...
2
votes
0
answers
14
views
Interpretation of bias with an endogenous variable
I am running an analysis of impacts of immigration on natives' votes to anti-immigration parties, across municipalities.
The concern in this type of analysis is that location decisions of immigrants ...
- 31
2
votes
0
answers
186
views
Instrumental Variables: satisfying exclusion criterion with Covariates
I have encountered a situation wherein I am trying to ascertain the causal effect of X on Y through an IV approach in a cross-country panel study, but the exclusion restriction is not entirely valid. ...
- 31
3
votes
1
answer
78
views
Identifiability of multivariate instrumental variable model
I'm interested in estimating the effects of $X_1$ and $X_2$ on $Y$ in the directed acyclic graph below. $U_1$ and $U_2$ are unobserved confounders. Based on Definition 7.4.1 on p. 248 of Causality ...
- 31
0
votes
1
answer
96
views
Measuring the effect of a variable that moves through another variable
Model
Let's say that I have a regression as follows:
$$ Income_{ti} = B_0 + B_1Education_{ti} + B_2ControlA_{ti} + B_3ControlB_{ti} + u $$
Education is endogenous, and is in turn determined by:
$$ ...
- 379
0
votes
0
answers
717
views
If I have two endogenous variables for which I each have an instrument, do I absolutely have to use both of them in both first stages?
I am estimating a model with two survey questions, which I expect to be endogenous by 2SLS:
$$ Outcome_i = B_0 + B_1SurveyQuestionA_i + B_2SurveyQuestionB_i + B_3Control + u$$
I have an instrumental ...
- 379
3
votes
2
answers
386
views
Size of Complier Group (Instrumental Variables) - Mostly Harmless vs. Abadie Kappa
Focusing solely on the case with a binary endogenous explanatory variable $D$ and binary instrument $Z$ and control variables $X$, Angrist & Pischke 2009 ("Mostly Harmless Econometrics") ...
- 31
1
vote
0
answers
58
views
Log Likelihood for Two Stage Least Squares (for AIC or BIC)
I'm looking to use a number of information criteria (BIC, AIC, etc.) for Two Stage Least Squares.
Of course all information criteria need a log likelihood - and I'm also aware that for a Log-...
- 133
1
vote
0
answers
66
views
How to estimate 2SLS using ratio of covariance in a presence of a vector of exogenous variables?
I am trying to estimate 2SLS using some simulated data, just to understand the theory behind it. First, I did it with just one endogenous variable ($X$) and one instrument ($Z$). Supposing the classic ...
- 345
1
vote
0
answers
621
views
Control Function (CF) / Two Stage Residual Inclusion (2SRI) - with an ordinal EEV - in Stata
I am mostly an R user. But since I have not found a way yet to reproduce generalised residuals in R (link), I am using Stata for ...
- 379
4
votes
0
answers
531
views
Generalised Residuals - Estimated value of the density at that point for observation $j$ $i$?
I am trying to write R code for the generalised residuals as described in Vella (1993) and also mentioned by Wooldridge (2014). Wooldridge suggests to use these ...
- 379
1
vote
0
answers
590
views
How to do a Control Function (CF) / Two Stage Residual Inclusion (2SRI) with an ordinal dependent variable in the first stage and a glm in the second
I am trying to use a Control Function (CF) / Two Stage Residual Inclusion (2SRI) approach, because the modeled relationship that I am trying to estimate is non-linear (my dependent variable has a ...
- 379
1
vote
1
answer
335
views
Why including extra instrument variables in 2SLS changes my regression coefficients?
For example, when I include $A_i$ as my first instrument variable, I got the causal parameter estimate $=0.0592$ and if I included one more IV, $B_i$, my causal parameter estimate changes to $0.0505$. ...
- 165
2
votes
0
answers
302
views
2SLS approach using lagged dependent variable as an instrument
I was wondering if the lagged dependent variable can be a valid instrument or not.
In my data, policy intervention (x) is made depending on the outcome (y) in the past. (not depending on the effect (b)...
- 61
0
votes
0
answers
38
views
What is 2SLS estimator with three instruments?
Given the following model,
$$y_i = a + bx_i +e_i$$
It's known that $Cov(e, x ) \neq 0$, so we are going to use 2SLS method. We have three variables $v_1, v_2, v_3$.
What is the formula for the slope $\...
1
vote
0
answers
357
views
How to decide whether to use robust errors in 2sls estimation
For my data, I have run both the OLS and IV regression to investigate the effects of health on salary. The BP test showed Heteroskedasticity for the OLS error terms so I decided to run the OLS ...
- 41
1
vote
0
answers
229
views
What is the effect of an omitted variable in the first stage of an IV/2SLS
Background
Let me start with the fact that I read, this post, this post and this post. These questions deal with omitting exogenous variables from the main equation in the first stage. My question is ...
- 379
2
votes
0
answers
28
views
2stage (instrumental variable) analysis: is reverse causality in the first stage a problem? [duplicate]
For my research I am looking into the relationship between an outcome (Y) and a predictor (X) as follows:
$$Y = X + e$$
where $e$ is the error term.
Because there might be reverse causality I am ...
- 73
1
vote
0
answers
234
views
Two-stage residual inclusion or two-stage predictor substitution
I am a beginner on this site, so my apologies if I ask something incorrectly here.
I have a panel dataset that looks like this:
Ultimately, I need to estimate the predictors of patient quality of ...
- 11
0
votes
0
answers
343
views
Testing for instrument validity using control function approach
Suppose we have a linear IV model with: $$ y_i=\beta x_i + \epsilon_i$$ $$x_i=\gamma z_i + u_i $$with $E(x_i \epsilon_i)\neq 0$ and $E(z_i \epsilon_i)=0$.
Then we can estimate the residuals in the ...
- 63
3
votes
1
answer
1k
views
Can I use same Instrumental variable for two of my endogenous variables?
I have the following model :
y= X1+x2+X1*X2+ other control
both X1 and X2 are endogenous. Can I use the same instrument for both X1 and X2?
- 31
3
votes
0
answers
135
views
2SLS with a boolean regressor
So, I have the following linear model:
$$y = \alpha + \beta x + u$$
and $x \in \{0,1\}$, i.e. the variable $x$ is boolean. Moreover $x$ may be endogenous, and I have a set of instrumental variables $\...
- 111