Questions tagged [2sls]
Two-stage least squares is a regression technique from econometrics used in instrumental variables analysis.
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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 ($\hat{x}$), ...
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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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Choosing between a set of potential instruments
I have a question regarding instrumental variable analysis/2SLS. I would like to estimate the following IV regression:
$$Y_{ht} = 𝛼_{h} +𝛿_{𝑡} + 𝜷_𝟏(MM_{ht})+ 𝜷_𝟐(Shock_{ht−1})+𝝉(MM_{ht}∗...
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Two-stage least squares with no instruments
I'm reading a paper that estimates a model that resembles two-stage least squares, but they include the same controls in both stages and no instruments. What does this achieve?
For example, we want to ...
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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. ...
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Instrumental variable approach to account for self-selection in some experimental groups
I have conducted an experiment in which participants were randomly assigned to six groups:
Control group
Control group with additional information about problem
Pre-set treatment group
Pre-set ...
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What is an applicable instrument for my regression of demand for credit on interest rate?
I have a OLS regression for panel data with demand for credit as dependent and interest rate as independent. I'm worried about simultaneous causality and have decided on using an instrumental variable ...
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0
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my 2sls answer and IVreg differ from each other
I have to run IVREg and 2sls manually to show my answer match but I don't know why my answer differ from each other?
my model is ...
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0
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2 stage least squares, summing the first stage
I have a situation where the behavior of 1 group affects the welfare of another. (smokers affecting non-smokers through second-hand smoke).
The 1st group is affected by a treatment (a tax is imposed ...
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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 ...
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Computing Wu-Hausman test for endogeneity without ivreg()
I am trying to understand how to compute the Wu-Hausman test manually without the need to use ivreg() function (which typically provides the diagnostics in its summary). Consider the following lines ...
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What control variables should be included back in a second stage regression?
Suppose you want to estimate the average effect of $X_1$ on $Y$ using the model:
$E(Y_i|X_i) = \beta_0 + \beta_1 X_{1i} + \beta_2 X_{2i} + \beta_3 X_{3i}$
If I understand correctly, there is an ...
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How to perform 2SLS for panel data in R?
I am interested in performing 2SLS for a panel dataset where each patient has multiple visits to the hospital. This is the link to a sample of my dataset. There are three main variables I am concerned ...
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1
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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 $$
Education is endogenous, and is in turn determined by:
$$ ...
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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 ...
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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") ...
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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-...
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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 ...
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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 ...
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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 ...
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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 ...
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1
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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 $0.0505$. ...
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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)...
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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 $\...
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0
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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?
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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 $\...
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How do you prove that an IV estimator is (in general) inconsistent if the first stage regression does not include a constant?
Given an equation
$$
Y = \alpha + \beta X + u
$$
where $X$ is an endogenous variable and $Z$ is a valid instrument for $X$.
Then suppose that
$$
X = \gamma + \pi Z + v
$$
is the true data generating ...
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Can I use an exogenous variable from my model as an instrumental variable?
Can I use an exogenous variable specified in my model as an instrument for an endogenous one?
It can be reasoned that there is a relationship between the two.
My conjecture is this:
Given that the ...
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0
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Which F statistic is generated in felm (R) and why does it differ from STATA (ivreghdfe)
I'm running 2sls and making sure that my results replicate in both stata and r. In r, using felm, my code is:
...
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Non-statistically significant effect of the instrument in the reduced form of the 2SLS
I am using a 2SLS, with two endogenous variables and two instruments.
I conduct the Under- and the Weak-identification tests; results from these tests suggest that my instruments are not weak.
...
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When endogenous variable is non-normally distributed
I am trying to fit an IV probit model with my dependent variable being binary. However, my endogenous variable is a "ratio" variable, which is not normally distributed, thereby preventing me ...
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Why is the Wald Estimator equal to LATE (binary instrument)?
In Mostly Harmless Econometrics, Equation (4.1.12) states that in IV setting with binary instrument $Z$, treatment $D$, and potential outcomes $Y_1,Y_0$ for $Y$, then
$$E[Y_1-Y_0|D_1 = 1, D_{0} = 0] =...
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Test for weak instruments in Stata when using VCE robust [closed]
does anyone know how I can test for weak instruments (one instrument, just identified model) after 2SLS regression in Stata when using robust standard errors (VCE robust)?
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Using residuals in 2SLS regression to remove reverse causality
Someone suggested the following idea to me to control for reverse causality. Suppose we want to test for the effect of $X$ on $Y$ in a panel data set, but we suspect that there is reverse causality. ...
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A 2SLS when the instrumented variable has two interactions in the model
I am using ivreg and ivmodel in R to apply a 2SLS.
I would like to instrument one variable, ...
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Inconsistency of Forbidden Regression Estimator
I am trying to prove the inconsistency of the estimator of the in the following model:
1st stage:
2nd stage:
When the population model is
and .
I know this is a forbidden regression because ...
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Addressing Near Perfect Correlations In Highly Competitive Commodity Markets
I am working on an analysis for a highly competitive agriculture market. I'm looking at county elevators in Iowa where competitors set their price for tomorrow's corn "ask" the evening before, but ...
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1
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Missing R squared value from STATA output, what does that mean?
I ran a 2SLS regression in STATA, and there is no R squared value given in the output (only a dot where the value should be). What could this be interpreted as? Is it missing because it may be a ...
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How do I tell if my Instrument is valid?
I have the following structural model (similar) which I wish to estimate
$$
Y_t = \beta_0 + \beta_1 X_t + \epsilon_t
$$
but I'm aware that $X_t$ is endogenous or equivalently, $E[X_t\epsilon_t]\ne 0$....
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Why do estimates differ so much between Instrumental Variable (ivreg) vs 2SLS (lm)?
I am working with some messy pilot data to figure out whether Instrumental Variable analysis will help interpret the results of a randomized controlled trial I am preparing. Treatment compliance in ...
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Instrumental variables with interactions between endogenous variables
I have two endogenous variables $x_1$ and $x_2$ and am trying to estimate the following model:
$$y = \theta_0 + \theta_1 x_1 + \theta_2 x_2 + \theta_{12} x_{12}$$
where $x_{12} = x_1\times x_2$. I'm ...
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1
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What control variables do we need for IV regression?
I am running and IV regression and I need help on what control variables to include in the IV regression. I believe that I have to control for potential variable that are correlated with both the ...
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Implementation of 2SLS in regression with AR errors?
Consider the following simple example:
$Y_t=\beta X_{t-1}+\varepsilon_t$
$X_t=\gamma Y_t + Z_t +u$,
where
$\varepsilon_t=\alpha\varepsilon_{t-1}+\eta$,
and $E[Z_t\varepsilon_t']=E[uu']=E[\eta\...
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