Questions tagged [2sls]

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

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337 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 $...
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1answer
899 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 ...
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329 views

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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321 views

Nonlinear Two Stage Least Squares Instrumental Variable method

I am trying to figure out how this paper estimates extended Solow production function using nonlinear two stage least squares instrumental variable method (or non linear 2SLSIV). The full ...
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1answer
80 views

Continuous instrument- 2SLS estimation

I am trying to estimate the enrollment premium at high-fees schools i.e., impact of high-fee school enrollment on learning outcomes. I am instrumenting high-fee school enrollment by using a continuous ...
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668 views

Fuzzy RDD in Stata with two cutoff points

I am running a Fuzzy Regression Discontinuity Design using 2SLS. If I specified the model (and most importantly the IVs) correctly as i have never worked on a RDD before. The difference to the usual ...
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1answer
826 views

Is it possible to do a 2sls with linear regression in the 1st stage and logistic regression in the 2nd stage?

I'm working on a a bivariate logistic regression. But I have an endogeneity problem and I want solve it through 2sls with 2 instrumental variables. My thought was to regress (OLS) in first stage and ...
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199 views

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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1answer
899 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: ...
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26 views

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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315 views

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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1answer
441 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 ...
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649 views

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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464 views

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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1answer
64 views

If my IV (denoted Z) equals 1, my endogenous var D always equals 1; is this a problem?

I have a binary instrumental variable Z={0,1} and a binary endogenous variable D={0,1}. By construction, D=1 necessarily holds if Z=1. There are also cases where D=1 if Z=0, but there are no cases ...
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1answer
372 views

Endogenous variable problem or why to use 2SLS?

Consider linear model $$y = \beta_0 + \beta_1x_1 + \dots + \beta_{k-1}x_{k-1} + \beta_kx_k + u $$ where $x_k$ is correlated with $u$ which results into inconsistent estimators of $\beta$. As I ...
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1answer
505 views

How does an IV regression/2SLS affect coefficient (increase/decrease) with initial simultaneity?

So let's say I want to look at how X affects Y, but there is some simultaneity going on: X ...
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1answer
791 views

Linear first stage, non-linear second stage 2SLS regression

I was wondering if it's possible to perform a 2SLS regression where I first run a regression for my endogenous variable, obtain the predicted values and then use them in my second stage regression (a ...
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693 views

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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1answer
1k views

Including several endogenous interaction terms

I would like to write you beacause of the following issue: I´m estimating an IV-model with the following common structure: $Y = constant + b1*X1 + b2*X2 + b3*Xend + b..*Xcontrols$. I´ve found also a ...
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31 views

2SLS with a discretized endogenous variable

Imagine you would like to estimate by OLS the following: $$y=\beta_0+\beta_1 med + \beta_2 high + u$$ $med$ and $high$ are dummy values with respect to some underlying variable $x \in [0,\infty)$. $$ ...
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117 views

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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65 views

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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194 views

2SLS with heterogeneous first-stage

Suppose I have the following model, where $c$ indexes group and $i$ indexes members within a group. The sample is made up of $(i,c)$ pairs. The model is: $$ y_{ic} = \alpha + \beta_x x_i + \epsilon_i ...
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1answer
913 views

Multiple exogenous IV 2sls in Stata [closed]

In my model I have two exogenous variables which I want to use as instruments. Can you please help me with Stata code for it? I assume it should be something like this: ...
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1answer
677 views

How do weak instruments violate full rank condition?

So I know that if the instruments $(Z_i)$ in 2SLS regression are weak i.e. $X_i$ and $Z_i$ are uncorrelated, then full rank condition for matrix $\Sigma_{ZX}=E[Z_iX_i]$ will fail to hold, but how can ...
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1answer
889 views

how to explain instrumental variables to a layman

I am giving a talk to a group that contains both quantitative and qualitative researchers, but most of the quants' understanding stops at crosstabs and regression. Does anyone have any ideas which ...
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521 views

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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2answers
9k 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 ...
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1answer
333 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 ...
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1answer
6k 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 \...
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1answer
75 views

Clarifying a sentence from Angrist and Krueger (2001)

In Angrist and Krueger (2001), it is said, during the discussion of pitfalls in using IV, on page 79 that Because the reduced form effects are proportional to the coefficient of interest, one can ...
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2answers
4k 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 ...
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1answer
310 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 ...
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3answers
51k 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 (...
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1answer
1k views

What is the accurate first stage regression in Stata's 2SLS option in IVREG2?

What I want to find is if Stata stacks the variables, such as is in: $$ \begin{bmatrix} x_{1t} \\ x_{2t} \end{bmatrix}=\begin{bmatrix} b_{1} \\ a_{1} \end{bmatrix}+\begin{bmatrix} b_2 & b_3 & ...
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1answer
339 views

2SLS Without Mixing The instruments

Suppose I have the following strucutural equation in time-series: $$y_t=\beta_0+\beta_1x_{1t}+\beta_2x_{t2}+\zeta w_t+\epsilon_t \quad (1)$$ In which both $x_{t1}$ and $x_{t2}$ are endogenous ...
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0answers
511 views

Test on weak IV when first stage is nonlinear

When the first stage is linear, like the case of 2sls, the test of weak IV is straight forward, method like Stock and Yogo (2005) test are available in standard package command, like ...
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1answer
2k views

Causality studies on observational data: DID with 2SLS to compliment Rubin causal model

A study with observational data has treatment and control group but the assignment is not randomised: some chose to be in the treament, some otherwise. But the choice had been made before the ...
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1answer
7k views

2sls for panel data in R [closed]

My question is how to do 2sls estimation for panel data (fixed effects) in R software? I try to use ivreg but I cannot set fixed effects option there. Any suggestion would be good!
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789 views

Nonlinear first-stage specification in 2SLS

My question is whether there are any substantial benefits from specifying a nonlinear first-stage in 2SLS regression. Generally, we assume that first stage is a linear relationship, like: \begin{...
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0answers
774 views

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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0answers
340 views

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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0answers
67 views

Instrument variable that indirectly related to the error term. Valid?

I try to grasp the concept of instruments in 2SLS regressions. I have a variable that is correlated with an endogenous regressor (informative). I also believe that it is uncorrelated with the error ...
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1answer
101 views

What is the model similar to 2SLS, but not for IV?

I am analyzing the effect of foreign aid on democracy and I would like to test following hypothesis (I simplified the original version): The amount of aid the country received and the corruption ...
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1answer
195 views

Changes in F-value of instrument

I am using 2SLS to estimate the effect of education on the probability that one works. In the first stage I regress education on my instrument and the other exogenous control variables. The same ...
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1answer
3k views

High Collinearity between Instrument and Endogenous Variable in IV Estimation: Weak Instrument Problem?

I am estimating an IV Tobit model with one endogenous variable X and one instrument Z. $$Y=X\beta+ covariates +\epsilon$$ where $cov(X,\epsilon) \ne 0$ due to endogeneity of $X$. I am using IV ...
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1answer
2k views

F-test and Rank test for underidentification

I've been performing a manual 2sls regression and I've come with the following results and that I find a bit suspicious. I've done the F-test of the first-stage regression and I've obtained a score ...
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324 views

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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208 views

Graph showing the first stage effect

I am using a 2SLS approach in order to estiamte the effect from increased education. I want to show the effects of the first stage graphically, ie I want to show that the instrument affects schooling ...