The second-stage in an instrumental variable approach to controlling for endogenous independent variables is to
A)regress the endogenous independent variable on the instrument and all of the remaining independent variables and using those estimates to calculate predicted values of the endogenous variable.
B)estimate the original population regression model with the residuals included as an independent variable.
C)estimate the original population regression model with the predicted values of the endogenous right hand side variable substituted for the observed values of the endogenous right hand side variables.
D)regress the endogenous variable on the instrument and all of the remaining independent variables and using those estimates to calculate the residuals.

Question

Quizplus · Accepted Answer

In the second stage of an instrumental variable approach, the original regression model is estimated with the predicted values of the endogenous variable (obtained from the first stage) substituted for the actual values of the endogenous variable. This helps to mitigate the bias caused by endogeneity.

The Second-Stage in an Instrumental Variable Approach to Controlling for Endogenous