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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Is an explicit "treatment" variable a necessary condition for instrumental variable analysis?
I'm trying to model the causal impact of our marketing efforts on our ads business, and I'm considering an Instrumental Variable (IV) framework. I'd appreciate a sanity check on my approach and any ...
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Can I perform an IV regression where the first stage is estimated without fixed effects, but the second stage includes fixed effects?
I wish to perform an IV regression where the first stage is estimated without fixed effects, but the second stage is estimated with fixed effects. Is this possible? Are there any obvious issues with ...
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Why does the coefficient lose significance when using IV independent variable and also including district fixed effects?
I am trying to examine the effect of a 2018 flood shock on labor force participation of male and female. However, the flood could not only be attributed to heavy rainfall but to other factors like ...
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Meta analysis with overidentified 2SLS estimates
To meta analyze estimates of some parameter $\theta$, we assume we have estimates $\hat{\theta_i} = \theta_i + \epsilon_i$, where $\theta_i \sim G(\theta)$ and $\epsilon_i \sim N(0, \sigma_i^2)$. If ...
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Does an instrumental variable require independence between the instrument and treatment?
An instrumental variable Z is a legitimate instrument for T (the treatment) if the following hold:
Z has a causal effect on Y that is fully mediated by T (i.e. no direct effect from Z to Y, and the ...
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Do first and second stage regressions combined with fixed effects have to follow the same model?
I suspect reverse causality between Y and X1, therefore I'm applying an instrumental variable approach to panel data. My main regression consists of country- and year-fixed effects. Do I have to also ...
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Instrumental variable with measurement error
I have a question related to measurement error bias and the use of instrumental variables. Assume I have a continuous outcome variable $Y$ which is observed with no error and an endogenous (continuous)...
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Weak instrument but 2nd stage significant
My IV's 1st stage F-stat is 4.7 (considered weak by the rule of thumb). The 2nd-stage regression coefficient is significant. I wonder what is the best way to interpret such observations.
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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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warning: variance matrix is nonsymmetric or highly singular [closed]
I get the above warning when running a 2SLS regression in Stata with robust standard errors. Specifically, I get this for the first stage, where in addition the first stage has no F-statistic, p-value,...
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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 ...
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Estimating Complier Average Causal Effect (CACE) in a Field Experiment with One-Sided Noncompliance
I am working on a referee report for a field experiment focused on the employment process. The experiment investigates if including a video in job applications can reduce employment disadvantages for ...
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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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The magnitude of an two-stages least squares coefficient is always larger than the ordinary least squares coefficient?
I have a hard time wrapping my head around this. I know that in case of measurement errors, the OLS estimate is biased downwards zero. Omitted variables can bias the explanatory variable of interest ...
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IVs: would this rainfall specification cut it?
I need feedback to check whether rainfall is an appropriate instrumental variable. Before you boo me out, hear what I have to say.
There are two countries: A and B. A and B are 2000 miles apart.
My ...
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2SLS with endogenous variable $X_1$ and interaction terms $X_1 \times X_2$, $X_2$ exogenous
I would like clarification on the correct way to set up the first-stage regression(s) for a hypothetical 2SLS regression. Say we have the following formula:
\begin{align}
y = x_1 + x_2 + x_1 \...
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Instrumental variable identifiability in a linear setting in the presence of unobserved confounders
Long story short, I'm seeing in the literature that linear instrumental variables models are identifiable, even in the presence of unobserved confounders. The unobserved confounding aspect befuddles ...
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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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Can a variable be an instrument in the first stage and an exogenous covariate in the second stage of an 2SLS regression?
I have two equations of the form:
$y = X\beta + Z\gamma + r\alpha +\epsilon_1$ (1)
$r = Z\delta +\epsilon_2$ (2)
The basic intuition here is $y$ is total cost data, $X$ is a matrix of variables ...
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Can I have an interaction-term between the predicted endogenous variable and other exogenous variables in the second stage Modell of a 2SLS?
I have a question regarding 2SLS and interaction-terms between the predicted endogenous variable and a set of exogenous variables (second stage).
I want to calculate the effect of an endogenous ...
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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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ECM long-run elasticity with one I(2) variable
I am estimating a 2SLS using a time series simultaneous equation ECM. The purpose is to estimate the price elasticity of electricity demand. Assume that both price and demand are I(1) variables, ...
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Manually calculate robust standard errors of 2SLS regression
I used the "systemfit" function in R to estimate a 2SLS model as it allows to specify the first and second stage separately which is important for my estimation. I need robust standard ...
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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 ...
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What's the difference between exogenous and endogenous identifiers?
What's the difference? Exogenous vs. Endogenous identifiers.
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Are standard errors from a second stage with OLS always underestimated? [duplicate]
I use Stata. I build on Standard errors of a two stage least squares regression, Stata to compute manually the standard errors for my model:
I cannot use standard packages (ivreg2 etc.) as the second ...
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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.
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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 ...
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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 ...
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Prediction of the 1st stage in 2SLS not important?
My question was sparked by the discussion Why is the functional form of the 1st stage in 2SLS not important?
I understand that in the first-stage we aim to predict our endogenous variable ($\hat{x}$), ...
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Why not simply use your instrumental variable as your independent variable?
I'm a little confused as to why we need to go through an entire two-stage regression process to capture the effect of our instrumental variable on our independent variable, and then only use this ...
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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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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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Struggling for simultaneous equation models
Recently, I have been reading the paper "Refinancing risk and cash holdings" by Jarrad Harford.
This is a simple example of his model:
$$y_1 = a_0 + a_1 y_2 + a_2 Z_1 + v$$
$$y_2 = b_0 + b_1 ...
Hu WeiPing
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Instrumental Variables: satisfying exclusion criterion with Covariates
I have encountered a situation wherein I am trying to ascertain the causal effect of X on Y through an IV approach in a cross-country panel study, but the exclusion restriction is not entirely valid. ...
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Identifiability of multivariate instrumental variable model
I'm interested in estimating the effects of $X_1$ and $X_2$ on $Y$ in the directed acyclic graph below. $U_1$ and $U_2$ are unobserved confounders. Based on Definition 7.4.1 on p. 248 of Causality ...
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Measuring the effect of a variable that moves through another variable
Model
Let's say that I have a regression as follows:
$$ Income_{ti} = B_0 + B_1Education_{ti} + B_2ControlA_{ti} + B_3ControlB_{ti} + u $$
Education is endogenous, and is in turn determined by:
$$ ...
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If I have two endogenous variables for which I each have an instrument, do I absolutely have to use both of them in both first stages?
I am estimating a model with two survey questions, which I expect to be endogenous by 2SLS:
$$ Outcome_i = B_0 + B_1SurveyQuestionA_i + B_2SurveyQuestionB_i + B_3Control + u$$
I have an instrumental ...
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Size of Complier Group (Instrumental Variables) - Mostly Harmless vs. Abadie Kappa
Focusing solely on the case with a binary endogenous explanatory variable $D$ and binary instrument $Z$ and control variables $X$, Angrist & Pischke 2009 ("Mostly Harmless Econometrics") ...
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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-...
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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 ...
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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 ...
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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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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 ...
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Why including extra instrument variables in 2SLS changes my regression coefficients?
For example, when I include $A_i$ as my first instrument variable, I got the causal parameter estimate $=0.0592$ and if I included one more IV, $B_i$, my causal parameter estimate changes to $0.0505$. ...
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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)...
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What is 2SLS estimator with three instruments?
Given the following model,
$$y_i = a + bx_i +e_i$$
It's known that $Cov(e, x ) \neq 0$, so we are going to use 2SLS method. We have three variables $v_1, v_2, v_3$.
What is the formula for the slope $\...
