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Questions tagged [two-stage-least-squares]

Two-stage least squares (2SLS) is a structural equation modeling technique that is used when the IV is correlated with the DV's errors.

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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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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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Temporal Order of Control Variables in 2SLS

I am analyzing pooled cross-sectional data with the instrumental variable being educational policy, the independent variable as high school graduation, and the dependent variable as subjective class ...
Nobody Nobody's user avatar
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When is an instrument too strong in the first stage?

Instrumental variable regression is estimated with ivreg in R. ivreg provides diagnostics with the ...
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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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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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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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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 ...
Econ's user avatar
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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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What is a 2-stage estimator?

I thought I would quickly find the answer to this, and maybe my capabilities of using the sites search function are very poor, but I didn't find an answer to the definition of what a 2-stage estimator ...
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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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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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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)...
Yendao Su's user avatar
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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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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: ...
Nusrat A Jimi's user avatar
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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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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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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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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 ...
CodeTrek's user avatar
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Two-stage least squares approach to Deming regression

I am interested in statistical inference for the Deming regression model: $$ x_i=x^*_i + \epsilon_i$$ $$ y_i = (\alpha+\beta x^*_i) + \epsilon'_i$$ where the $x^*_i$'s are nonrandom fixed numbers, $\...
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2sls with interaction terms

I am running 2sls. Dependent variable - y Independent variable - x Instrumental variables - z1, z2, z3, z4 Interaction terms - xz1, xz2, xz3, xz4 Control variables Thus, the first stage of 2sls: x ...
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How to evaluate the effect of each group in dummy D to endogenous variable X in 2SLS regression?

I have a question in terms of evaluating the effect of a dummy $D$ to endogenous variable $X$ in two-stage least squares (2SLS) regression. Suppose I have dependent variable $Y$, endogenous variable $...
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Discrepancy in 2SLS Estimation Results

I've been exploring the 2SLS (Two-Stage Least Squares) estimation method to analyze a model involving endogeneity and instrumental variables. To better understand the process, I performed manual ...
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Two questions about Interaction-terms in IV-regressions (2SLS) in R

I am doing a 2SLS-model in R with panel data (n=800), where I want to include an interaction-term as Instrumental-Variable in the first-stage model. My first question is: Does that even make sense? ...
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Should I take logarithm of weights in WLS regressions

I am new here. I have a question regarding the anlaytical weights used in ivreghdfe or reghdfe regressions. People usually take aweights in STATA, my question is how we deal with the weight if the ...
anniejerry's user avatar
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What is the 2SLS bias with a zero first stage in instrument analysis

I am trying to understand the impact in the IV estimate when zero coefficient is obtained in the first stage.
Chris's user avatar
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Can you use two stage least squares (instruments) on an endogenous categorical variable (Likert scale)?

I have an endogenous categorical variable (exlanatory variable) measured on a Likert scale (from 1-4) and I would like to instrument it via 2sls. I am wondering if this is a theoretically correct ...
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Is my instrumental variable too noisy?

I have an instrument, that I want to use with IV 2SLS, to predict my endogenous variable. The scatter plot of my instrument against my endogenous variable looks like this. Using Stata's binscatter, I ...
Xavi's user avatar
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2sls second stage statistically insignificant

i conducted a two stage least square regression. The coefficients of my first stage are statistically significant, but my second stage is not. How can i interpretate this? My F-Statistic of the second ...
Lola's user avatar
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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-...
Moritz Schwarz's user avatar
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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 ...
Oalvinegro's user avatar
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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 ...
Tom's user avatar
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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 ...
Tom's user avatar
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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 ...
rainbow21's user avatar
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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 ...
Tom's user avatar
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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: ...
Alyssa Huberts's user avatar
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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, $E[X_t\epsilon_t]\ne 0$....
krenova's user avatar
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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 ...
ben's user avatar
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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 ...
Djpengo's user avatar
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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?
appletree's user avatar
1 vote
1 answer
226 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 ...
user240758's user avatar
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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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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 ...
Dutchman's user avatar
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247 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 ...
Jackk's user avatar
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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 ...
Ron's user avatar
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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 ...
JoZ's user avatar
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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 $...
statnoobie1's user avatar
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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 ...
wesso's user avatar
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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: ...
Sarah's user avatar
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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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