TSLS Instruments

[FOTIS]

I want to run TSLS with random effects and White cross-section correction. I assume that there is no problem with that.

My question is how exactly should I include the instruments?

My equation is

AFT = C + SIZE + SINGLE + STOCK + LIFE + SUPER + CAP (eq. 1)

I want to use the following instruments for SUPER and CAP only: INSTR1, INSTR2

My understading is that in the instruments box I should write:

C SIZE SINGLE STOCK LIFE INSTR1 INSTR2 (eq. 2)

Thus, each variable in (1) that is also in (2) is replaced by itself, and those in eq. (1) but not in eq. (2) (in my case SUPER and CAP) are replaced by predictions of SUPER and CAP using all the variables that are in eq. (2) but not in eq. (1) (i.e. INSTR1, INSTR2)

I assume that AFT (i.e. dependent) should not be included in the instruments' box. Am I correct?

[startz]

You have it right.

[FOTIS]

Many thanks for the quick reply!