The process of using two regressions to measure the causal effect of a variable while utilizing an instrumental variable is known as:
A) nonlinear least squares.
B) two-stage least squares.
C) difference in difference.
D) probit.

Question

Quizplus · Accepted Answer

Two-stage least squares involves running two regressions to account for potential endogeneity and measure the causal effect of a variable. It uses an instrumental variable to address the endogeneity issue by first regressing the endogenous variable on the instrumental variable, then using the predicted values from that regression as the independent variable in a second regression to estimate the causal effect. Nonlinear least squares, difference in difference, and probit are not methods specifically designed for addressing endogeneity in causal inference.

The Process of Using Two Regressions to Measure the Causal