Instrument Variable

[Apple Tan]

Hi

Using Eviews7. I want to do a TSLS regression. I read from the Eviews 7 user guide II that the instrument list show be as seen in image.

However, is log(perinc) one of the instruments? It is the variable we are instrumenting for, isn't it?


Thank you

[startz]

The version 9 manual says "The endogenous variable is the log of real after tax price per pack LOG(RAVGPRC)."

[Apple Tan]

Thanks for the reply. i missed out that line.

However, if my specification has an interaction with the endogenous variable, than how should the instrument list be?

model specification

log (A) = c + log (B) + log (C) + log (B) * log(D)
where log (B) is the endogenous variable.


Thank you

[startz]

You need the same number of instruments as you have variables, including the interaction. So you need four or more. None of the instruments can include B.