# Questions tagged [2sls]

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

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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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### Should instruments always weakly increase standard errors?

In OLS, are standard error estimates using some instrument $z$, different from $x$ always weakly larger than standard errors when not using instruments? This has been discussed before: Why is the ...
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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 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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### 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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### 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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### 2sls with lagged dependent

I have seen many papers using dynamic panel regressions when the lagged dependent is a regressor and the data has the standard panel format. so, y(t)=constant + beta1*y(t-1)+ beta2*X(t) is often ...
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### 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: ...
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### two models in 2sls procedure

I am trying to do following. bysort Country: regress bdr fam MTB lnTA this is my first stage regression for second stage I want to use another variable std as my dependent variable and use predicted ...
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### Interpreting dummy variable in Heckman 2SLS

My question is regarding interpreting the output of a Heckman 2SLS. Background information: I am exploring how institutional investor presence affects investments and firm performance during ...
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### How to work out direction of omitted variable bias in 2sls

In OLS you can reason to the direction of omitted variable bias by using the following formula: OVB = [Omitted in long] x [Relationship between omitted and variable of interest] My question: is ...
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### 2SLS vs OLS Efficiency Question

I'm doing some studying for finals and I'm wondering what would happen in a case like this. With the following model $y_t = x_t * \beta + \epsilon_t$ Say you had two IV's, $a_t$ and $b_t$. In ...
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### Before-after analysis and selection effect

I have sales data on 200 grocery brands who add a fair trade symbol to their product packaging (6 months before they become a member, and 6 months after they become a member). I also have data on all ...
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### 2SLS Regression, 1 Instrument effecting more than one explanatory variable?

So in my situation I have my dependent variable Log Income my Instrument Diabetes and my supposedly endogenous explanatory variable Reads Nutri. Where things start to get confusing for me is that ...
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### 2 stage least squares

I am looking into the effect of immigration on crime (using random effects panel data). there are 2 problems which 2 stage least squares should help with, firstly the endogeneity of immigration (as ...
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### 2sls IV with different unit of observation - Stata

I am doing some data analysis on Stata on a big sample and it turned out it might be useful to use an IV approach. My data are on two levels: individuals and groups. The group level is obtained ...
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### Valid Instruments for an IV/2SLS Regression for house prices

I'm brand new here so my apologies if this is too general or has been answered elsewhere. I'm trying to estimate a model for the house prices that includes several endogenous regressors. For the sake ...
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### How to correct standard errors of a two stage least squares

Can you demo a working example, in python (pandas or numpy) or R, how you can correct the standard errors on a 2sls. Most resources say that the software will do that automatically for you, but I ...
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### A proper use of the Cragg-Donald F-Statistic with more than one endogenous variable

I've read that the Cragg-Donald F-Statistic is similar to an F-test on the first-stage OLS regression when you have one endogenous variable. But with more than two endogenous variables, you should use ...
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### 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\...
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### Can dependent variables appear in interaction terms in a system of simultaneous equations?

Given a system of 2 equations with y1 and y2 the dependent variables: \begin{align} y1 &= a0 + a1x1 + a2(x2y2) + ... + e1 \tag 1 \\ y2 &= b0 + b1x1 + b2(x2y1) + ... + e2, \tag 2 \end{align} ...
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### 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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### 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 ...