TSLS, interactive term
Posted: Mon Oct 29, 2012 10:48 pm
Hi,
I would like to use the two-stage least squares regression with an interactive term that is linked with the endogenous variable (x1).
Assume the following equation
Y = x1 + x2 + x3 + x1*dummy
where x2 and x3 are the control variables and x1 is the endogenous variable
x1(-1) will be used as the instrumental variable
Should I include the following in the instrumental variable list?
Instrumental list x2 x3 x1(-1) x1(-1)*dummy
or
Instrumental list x2 x3 x1(-1) x1*dummy
Thank you for your help in advance.
I would like to use the two-stage least squares regression with an interactive term that is linked with the endogenous variable (x1).
Assume the following equation
Y = x1 + x2 + x3 + x1*dummy
where x2 and x3 are the control variables and x1 is the endogenous variable
x1(-1) will be used as the instrumental variable
Should I include the following in the instrumental variable list?
Instrumental list x2 x3 x1(-1) x1(-1)*dummy
or
Instrumental list x2 x3 x1(-1) x1*dummy
Thank you for your help in advance.