Questions tagged [2sls]

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

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What does it mean if I have a high F-stat but low $R^2$?

As far as I understand, a high F-stat leads to a high $R^2$, though the converse is not true. What does it mean if I have a high F-stat and a low $R^2$?
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Сonfidence interval mean response and prediction interval for Instrumental Variables regression

I evaluated the regression model using the 2SLS method which is presented in the ivreg R package. Using predict can get fitted ...
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2answers
34 views

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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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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1answer
32 views

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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1answer
38 views

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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1answer
22 views

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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28 views

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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1answer
27 views

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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1answer
169 views

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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8 views

How to properly use IV regression when my endogenous variable is a ratio?

I’m trying to better understand the issues relevant to the selection of an instrumental variable for a project I’m working on (and also more generally). In a recent example I ran into, my endogenous ...
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1answer
21 views

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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19 views

Instrumental variables: Fixed effects only in the second stage?

I have been under the impression that for a 2SLS FE model you got to have the fixed effects in both stages. So if you have a time invariant instrument you can forget about your FE, as they already ...
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10 views

Social-Network Peer Effect Regression

I have locally transformed model from Bramoullé 2009 to be estimated for regression estimation $\begin{equation} ( \mathrm{{I}} - {G}_{l}^{*}){y}_{l} = \beta_2( \mathrm{{I}} - {G}_{l}^{*}) {G}_{l}^...
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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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1answer
72 views

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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36 views

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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Simplifying last step of IV estimator derivation with matrices

I've been reading about IV in this textbook. On page 39 (page 5 of the PDF), I'm confused by the last step. How does [(z'z)^(-1)z'y]/[(z'z)^(-1)z'x] simplify to (z'x)^(-1)z'y? I can see that the (...
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Estimating post treatment outcome of IV

In the Angrist, Mastering metrices book (page 118, chapter 3, Instrumental variable) Angrist calculated "recidivism was greater among suspects assigned to be coddled than among those assigned to be ...
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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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28 views

Interpretation of Hausman test - IV models

I ran two IV models: 1) ivreg 2sls y x1 (x2=z1) 2) ivreg 2sls y x1 (x2=z1 z2) than I did a Hausman test, and it was not significant, so I could not reject the null. What does that mean? Is z2 a valid ...
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How to decide which variables belong in the first and second stage of the 2SLS method

Let's assume I want to estimate the model: Income = Education + Gender + u Let's say I would like to use the occurrence of two events with ...
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How apply 2SLS in order to find estimates of the SEM's model , provided that the lag values of the variables are used?

How should I apply 2SLS in order to find estimates of the model of a system of simultaneous equations, provided that the lag values of the variables are used? For example, there is the following ...
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27 views

Explaining instrumental variable 2SLS in a simple yet precise way

I am trying to explain IV 2SLS in a non-technical yet precise way. However, I still think I can improve, and I would highly appreciate input that could make some points clearer. One of the sticking ...
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203 views

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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1answer
722 views

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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19 views

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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120 views

Meaning of centred and uncentered r square [closed]

I'm not sure I understand fully the meaning of centred/uncentered r2. Is uncentered r2 is same as adjusted r2? and if not, how can I know the adjusted r2? That result estimated by IV analysis. the ...
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43 views

Instrumental variables and GARCH

Can you use the predicted value from the first stage (as estimated using 2SLS) to replace the endogenous variable in a GARCH model? Or, what would be a different way of using instrumental variables in ...
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1answer
64 views

Is the IV approach applicable to endogenous count variable in a linear regression?

In a linear regression setting, one of the regressors (independent variables) is endogeneous. However, strictly speaking it is not continouus, but a count variable. A continouus instrumental variable ...
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108 views

Overidentified vs just identified models

Why go with overidentified models as opposed to just-identified? If you can go with over-identified models, how many instrumental variables can you have at max in a 2SLS model?
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65 views

2sls asssumptions vs IV assumptions

Silly question but I was confused about the independence assumption for instrumental variables when they are used in 2SLS. Is it the case that the instrumental variable used in 2SLS only has to be as ...
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1answer
75 views

Why the representation in the form of $Z'X(X'X)^{-1}X'Z$ can not be simplified into $Z'Z$

Representation similar to $Z'X(X'X)^{-1}X'Z$ frequently appear to e.g. 2SLS. I think that $Z'X(X'X)^{-1}X'Z = Z'XX^{-1}X'^{-1}X'Z = Z'(XX^{-1})(X'^{-1}X')Z = Z'Z$. So why it seems that in the context ...
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1answer
183 views

Standard errors of *partial* two stage least squares coefficients

Here partial 2SLS (I coined this term and found it descriptive) is the approach that SAS uses for 2SLS. Compared to "ordinary" 2SLS which in the first stage projects all explanatory variables $X$ onto ...
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36 views

Interpretation of correlation in endogenous regression model

Suppose you have a linear regression with an endogenous regressor $x$ that can be represented as follows: $x = z'\delta + \epsilon_1$ $y = \beta x + w'\gamma + \epsilon_2$ where $\begin{pmatrix}\...
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1answer
154 views

Instrumental variables with non-normal endogenous

Does it make sense to conduct an instrumental variables model where the endogenous variable of interest is continuous but not normally distributed? I know for normal regression purposes, there is no ...
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104 views

Role of rank condition in identification of 2SLS - matrix algebra

I could write down all the steps for identification of the 2SLS estimator but my question is really a matrix algebra question which is required in the last step for finding out what the beta vector is ...
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1answer
92 views

How should an author convince readers that weak instruments are not a problem?

I see in a lot of instrumental variables papers that authors will often discuss first stage $R^2$ values or $F$ statistics to assuage concerns that they are working with a weak instrument. This seems ...
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How does IV 2SLS obtain a causal coefficient?

Despite reading and conducting several practical examples with IV 2SLS, I am still uncertain how, specifically and mathematically, 2SLS is able to obtain a causal coefficient, β, of an assumed ...
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2SLS Estimation for a Fuzzy Regression Discontinuity Design

I am using a Fuzzy Regression Discontinuity Design for the first time and this maybe a very basic question to some. I am estimating the Fuzzy RD with 2SLS. Suppose, my data is of the following form: ...
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175 views

2SLS (IV) with fractional outcome variable and spatially autocorrelated error terms

I face the challenge of estimating a 2SLS (IV) model with a fractional (ranging between 0 and 1) outcome variable and spatially autocorrelated error terms (the data is spatially explicit, i.e. for ...
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1answer
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mediate() vs lavaan, missing path coefficients, 2SLS does not resolve

Doing a straightforward mediation analysis, a => b => c (indirect effect) and a => c (direct effect). If I do this in mediation::mediate(), I get ...
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2answers
149 views

2sls - instrumental variables mean and variance of exogenous variable

I do not usually use two-stage-least-square regression technique and I am not a theorist of econometrics; thus, I hope you will pardon me for this (possibly) clumsy post. Introduction Let's start from ...
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1answer
477 views

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

I'm reading Mostly Harmless Econometrics (Available here), and on page 100 they say that 2SLS with dummy instruments is the same as GLS on a set of group means. I don't understand why. From the ...
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1answer
1k views

What do the assumptions for 2SLS (two-stage least squares) mean in the context of instrumental variables?

The assumptions for 2SLS are (z are the vector for instrumental variables; x are the explanatory variables in the model; u are the vector for the error term): Assumption 2SLS.1: E(z'u)=0, Assumption ...
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1answer
2k views

Endogeneity problem in OLS

I have an OLS-model with about 30 predictor variables, from which I got both big endogeneity and heteroscedasticity problems. The variables reporting these problems also pop up in the check for ...
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155 views

Significant Predictor with a Negative Adjusted R-Squared Value: Instrumental Variables Regression

I'm running an instrumental variables regression with a single predictor on a sample size of 120. When I run the regression, the predictor is significant at the 0.01 level, but the adjusted R-squared ...
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1answer
512 views

Is Sargan-Hansen J test relevant for panel data containing large number of observations?

I am working on a project that has 4680 observations (18 years, 265 regions), in which one variable is endogenous. We tried various combinations of two IVs, but always end up with a significant Sargan-...
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Why functional specification is important in RDD setting?

I'm reading Clark(2009) paper regarding the impact of education reform on school performance. The rule is that the school initiated a democratic vote at first and if 50% of students vote in favor of ...
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329 views

Simultaneous equations with interaction terms

How do you estimate the following simultaneous equation model on a panel dataset? $Y_1=\beta_1X_1Y_2 +\beta_2X_2+e_1$ $Y_2=\alpha_1X_1Y_1 +\alpha_2 X_3+e_2$ $Y_1$ and $Y_2$ are endogenous while $...