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### 2SLS Manual Input vs. Eviews

Posted: **Thu Oct 22, 2015 8:12 pm**

by **Amaziah**

I am trying to test for simultaneity by estimating a 2SLS instrumental variable procedure. I estimated the two steps manually and then compared them to the Eviews preprogrammed 2SLS estimation and got extremely different results. I am obviously making a mistake in one, if not both, of the procedures. Can someone help correct my estimation mistakes?

Eviews Estimation

P (price) is the potential endogenous explanatory variable and othrsrvcs is the instrumental variable.

Equation Specification:

Code: Select all

`att c expand rex p rinc pop ur win oppwin hwin prev rank temp precip night hist comm finale hc conf lastgame gamescoached rtv ntv`

Instrument List:

Code: Select all

`expand rex othrsrvcs rinc pop ur win oppwin hwin prev rank temp precip night hist comm finale hc conf lastgame gamescoached rtv ntv`

- Eviews Estimation.png (41.93 KiB) Viewed 4392 times

Manual Estimation

I first regressed the potential simultaneous variable (p) on all of the other explanatory variables and the instrument (othrsrvcs).

Code: Select all

`ls p c expand rex othrsrvcs rinc pop ur win oppwin hwin prev rank temp precip night hist comm finale hc conf lastgame gamescoached rtv ntv`

I saved the residuals as the series pfit. I then estimated the original specification with the pfit series instead of p:

Code: Select all

`ls att c expand rex pfit rinc pop ur win oppwin hwin prev rank temp precip night hist comm finale hc conf lastgame gamescoached rtv ntv`

- Manual Estimation.png (38.36 KiB) Viewed 4392 times

### Re: 2SLS Manual Input vs. Eviews

Posted: **Thu Oct 22, 2015 8:51 pm**

by **startz**

The problem is probably that you want the fitted values--not the residuals.

### Re: 2SLS Manual Input vs. Eviews

Posted: **Thu Oct 22, 2015 9:26 pm**

by **Amaziah**

Thank you. I want to include both the residuals and fitted value of the possible endogenous variable correct?

I generated the fitted values by forecasting the historical observations (phat). I estimated the following:

Code: Select all

`ls att c expand rex (phat+pfit) rinc pop ur win oppwin hwin prev rank temp precip night hist comm finale hc conf lastgame gamescoached rtv ntv`

- Manual Estimation.png (41.87 KiB) Viewed 4379 times

Eviews Estimation

- Eviews Estimation.png (41.97 KiB) Viewed 4379 times

### Re: 2SLS Manual Input vs. Eviews

Posted: **Fri Oct 23, 2015 6:19 am**

by **startz**

No.

### Re: 2SLS Manual Input vs. Eviews

Posted: **Fri Oct 23, 2015 6:38 am**

by **Amaziah**

startz wrote:No.

You are referring to including the residuals and the fitted values of the endoeneous variable? I got that from pages 6 and 7 from following source:

http://www.nyu.edu/classes/nagler/quant ... tes_oh.pdf. Is this methodology incorrect or just different?

But below are the results only using the fitted values of the endogenous variable. Is the discrepancy between methods a result of a mistake in my use of the Eviews 2SLS method?

Code: Select all

`ls att c expand rex phat rinc pop ur win oppwin hwin prev rank temp precip night hist comm finale hc conf lastgame gamescoached rtv ntv`

- Manual Estimation.png (36.22 KiB) Viewed 4362 times

### Re: 2SLS Manual Input vs. Eviews

Posted: **Fri Oct 23, 2015 7:05 am**

by **startz**

1. What is the discrepancy you are seeing?

2. The link you posted says to use the fitted values.

### Re: 2SLS Manual Input vs. Eviews

Posted: **Fri Oct 23, 2015 7:15 am**

by **Amaziah**

startz wrote:1. What is the discrepancy you are seeing?

For example, when I use the preprogrammed 2SLS on Eviews I get the following results, which are much different than the ones I just posted.

- Eviews Estimation.png (41.74 KiB) Viewed 4358 times

startz wrote: 2. The link you posted says to use the fitted values.

It says that X=X^+v^.

And then says to substitute X^ into the original equation for X: Y=a+b1(X^+v^)+b2X2+u.

### Re: 2SLS Manual Input vs. Eviews

Posted: **Fri Oct 23, 2015 7:21 am**

by **startz**

It says substitute in X^.

Which results are different?

### Re: 2SLS Manual Input vs. Eviews

Posted: **Fri Oct 23, 2015 7:27 am**

by **Amaziah**

startz wrote:Which results are different?

The standard errors, and therefore t-Statistics, and the summary statistics differ.

### Re: 2SLS Manual Input vs. Eviews

Posted: **Fri Oct 23, 2015 7:31 am**

by **startz**

That's right. Doing the two stages manually requires a correction to the standard errors, *as the document you posted states*.

### Re: 2SLS Manual Input vs. Eviews

Posted: **Fri Oct 23, 2015 7:38 am**

by **Amaziah**

startz wrote:Doing the two stages manually requires a correction to the standard errors.

How can I correct the standard errors?

Since the Eviews 2SLS estimation results are poor, this would suggest that X^ is a noisy predictor of X?

### Re: 2SLS Manual Input vs. Eviews

Posted: **Fri Oct 23, 2015 8:32 am**

by **startz**

If by "poor" you mean low t-statistics, yes that could be due to a noisy predictor.

### Re: 2SLS Manual Input vs. Eviews

Posted: **Fri Oct 23, 2015 8:36 am**

by **Amaziah**

Okay. Thank you very much for all your help and for walking me through this step by step.