Instrumental Variables
Posted: Wed Jul 29, 2009 3:28 pm
Anybody has any idea about them? Can I refer to any notes or online material regarding these as I am still a newbie at this 
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Re: Instrumental Variables
Posted: Wed Jul 29, 2009 5:47 pm
The wikipedia entry is not bad.
Re: Instrumental Variables
Posted: Thu Aug 06, 2009 3:29 pm
it is used in the case when the initial assumptions about x and error term do not hold.
e.g. if x and error are correlated, we need an IV that is highly correlated with x but uncorrelated with error, say z.
then two stage least square applies, 1st, regress x on z to get x hat; 2nd regree y on x hat.
i hope my ans is clear.
e.g. if x and error are correlated, we need an IV that is highly correlated with x but uncorrelated with error, say z.
then two stage least square applies, 1st, regress x on z to get x hat; 2nd regree y on x hat.
i hope my ans is clear.
Re: Instrumental Variables
Posted: Thu Aug 06, 2009 3:34 pm
although you should use the EViews command TSLS. Don't run two separate regressions.we need an IV that is highly correlated with x but uncorrelated with error, say z.
then two stage least square applies, 1st, regress x on z to get x hat; 2nd regree y on x hat.