# Questions tagged [2sls]

Two-stage least squares is a regression technique from econometrics used in instrumental variables analysis.

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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 $... 1 vote 0 answers 18 views ### Discrepancy in 2SLS Estimation Results I've been exploring the 2SLS (Two-Stage Least Squares) estimation method to analyze a model involving endogeneity and instrumental variables. To better understand the process, I performed manual ... 0 votes 0 answers 26 views ### The magnitude of an two-stages least squares coefficient is always larger than the ordinary least squares coefficient? I have a hard time wrapping my head around this. I know that in case of measurement errors, the OLS estimate is biased downwards zero. Omitted variables can bias the explanatory variable of interest ... 0 votes 0 answers 27 views ### Which model to choose (OLS, fixed-effects, 2SLS, random-effects) in R? I want to perform an analysis on my panel data, but I have troubles finding the best model for my analysis. I performed an F-test to detect whether the pooled OLS or the fixed effects is more suitable.... 0 votes 1 answer 25 views ### IVs: would this rainfall specification cut it? I need feedback to check whether rainfall is an appropriate instrumental variable. Before you boo me out, hear what I have to say. There are two countries: A and B. A and B are 2000 miles apart. My ... 0 votes 1 answer 41 views ### 2SLS with endogenous variable$X_1$and interaction terms$X_1 \times X_2$,$X_2exogenous 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 ... 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 ... 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 ... 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 ... 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 ... 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 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? ... 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, ... 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 ... 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 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 ... 1 vote 1 answer 62 views ### What's the difference between exogenous and endogenous identifiers? What's the difference? Exogenous vs. Endogenous identifiers. 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 ... 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 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. 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. ... 0 votes 0 answers 22 views ###$z$is the endogenous variable, and$x_1$and$x_2$are the instruments in this probit 2SLS model? Given a probit model${ }^{} 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+... 1 vote
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### 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 ...
1 vote
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### 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 ...
1 vote
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### 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 ...
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### 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 ($\hat{x}$), ...
1 vote
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 ...
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### 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 ...
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### 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 ...
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### 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. ...
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 ...