Questions tagged [2sls]
Two-stage least squares is a regression technique from econometrics used in instrumental variables analysis.
116
questions
1
vote
1answer
14 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] =...
2
votes
1answer
21 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. ...
0
votes
1answer
25 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)?
2
votes
1answer
112 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, ...
1
vote
1answer
797 views
Bivariate probit versus 2SLS, contradictory results (sign)
I am currently facing puzzle and I hope some of you will be able to provide me some insights. I have this model: y: binary variable, x1: binary variable (endogenous), z: binary instrument, x2: ...
0
votes
1answer
135 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 theoretic of econometrics; thus, I hope you will pardon me for this (possibly) clumsy post.
Introduction
Let's start ...
0
votes
1answer
166 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 ...
0
votes
0answers
7 views
How to properly use IV regression when my endogenous variable is a ratio?
Iām trying to better understand the issues relevant to the selection of an instrumental variable for a project Iām working on (and also more generally). In a recent example I ran into, my endogenous ...
2
votes
0answers
11 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 ...
0
votes
0answers
14 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 ...
0
votes
1answer
5k views
2SLS with endogenous interaction term
I am trying to estimate a peer effects model where a certain characteristic of the individual and the peers might be endogenous:
$$\ y_i=\alpha + \beta_1 Controls_i + \gamma_1 Endog_i +\gamma_2 \...
0
votes
0answers
9 views
Social-Network Peer Effect Regression
I have locally transformed model from BramoullƩ 2009 to be estimated for regression estimation $\begin{equation}
( \mathrm{{I}} - {G}_{l}^{*}){y}_{l} = \beta_2( \mathrm{{I}} - {G}_{l}^{*}) {G}_{l}^...
0
votes
0answers
14 views
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 ...
0
votes
1answer
43 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 ...
1
vote
0answers
34 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, $E[X_t\epsilon_t]\ne 0$....
0
votes
0answers
16 views
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 (...
1
vote
1answer
518 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 ...
0
votes
0answers
10 views
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 ...
1
vote
0answers
59 views
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 ...
0
votes
0answers
26 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 ...
6
votes
2answers
7k views
Weak first stage in 2SLS
I have a simple IV model with 1D variables:
$N = \alpha_z + \beta_z Z + \epsilon_z$
$S = \alpha_s + \beta_s N + \epsilon_s$
$N$ is an integer, while $S$ is dummy.
$Z$ is by construction ...
0
votes
0answers
11 views
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 ...
4
votes
1answer
2k views
Can there be endogeneity?
I am performing a regression in which I suspect there could be endogeneity between the main explanatory variable and the dependent. As a first step I perform an OLS regression and then, to control for ...
6
votes
1answer
263 views
Are There Evaluation Criteria For Instrumental Variables?
If theory points to multiple possible instruments that can be used, how can I choose which one of them is the best for 2SLS?
I read that good instrument should be significant and correlated with the ...
0
votes
0answers
15 views
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 ...
6
votes
0answers
141 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 ...
0
votes
0answers
24 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 ...
0
votes
0answers
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\...
0
votes
1answer
317 views
2SLS for sales data (problem with IV)
I am given a task to perform an analysis on marketing data and to find out if the prices for the products and marketing budget are set correctly.
In order to do it, I need to find a suitable model ...
0
votes
0answers
39 views
PCA of many weak IVs in 2SLS
"Instrumental variable estimators can be severely biased in finite samples when the degree of overidentification is high or when the instruments are weakly correlated with the endogenous regressors." ...
3
votes
2answers
3k views
Why do you put all the exogenous variables into the first and second stage of 2SLS?
For a general MLR, let's say we have k endogenous X's, r exogenous W's, and m instruments.
The first stage of the 2SLS model is regressing each of the endogenous X's on all the Z's and W's. For the ...
16
votes
3answers
48k views
Two stage models: Difference between Heckman models (to deal with sample selection) and Instrumental variables (to deal with endogenity)
I am trying to get my head around the difference between sample selection and endogeneity and in turn how Heckman models (to deal with sample selection) differ from instrumental variable regressions (...
1
vote
0answers
90 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 ...
3
votes
1answer
800 views
Why use two stage least squares for the instrumental variable estimator?
Following the rationale from Econometric Methods with Applications in Business and Economics by Heij et al., the instrumental variables estimator $b_{IV}$ for the linear regression model
$y = X\beta ...
1
vote
0answers
37 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 ...
0
votes
1answer
58 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 ...
3
votes
1answer
14k views
Basic 2SLS IV Questions in Stata
(1) If I believe my instrument is exogenous conditional upon a few exogenous variables, do I include them only in the first stage? I.e. would the command be:
...
1
vote
0answers
92 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?
2
votes
1answer
377 views
Heterogeneous treatment effects with 2SLS local average treatment effect (LATE)
I am interested in a strategy to calculate heterogeneous treatment effects with an IV strategy for local average treatment effects (LATE).
I am estimating the effect of postsecondary educational ...
1
vote
0answers
63 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 ...
1
vote
1answer
66 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 ...
1
vote
0answers
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}\...
1
vote
1answer
129 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 ...
1
vote
0answers
102 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 ...
2
votes
1answer
89 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 ...
1
vote
0answers
137 views
Multiple (binary) endogenous variable for separated subgroups
I want to specify an empirical model of home ownership like:
\begin{align}
Y &= X'\beta+\sum_j \delta\cdot D_j + \gamma_1\cdot\lambda(X_1\cdot\theta)+\text{city_dummies}+u \\
D_j &= \phi_j\...
16
votes
1answer
4k views
2SLS but second stage Probit
I am trying to use instrumental variables analysis to infer causality with observational data.
I have come across a two-stage least squares (2SLS) regression which is likely to address the ...
4
votes
2answers
961 views
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, Ī², of an assumed ...
1
vote
0answers
1k views
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:
...
1
vote
0answers
169 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 ...
