Suppose you are trying to estimate the following regression: Y_i = β₀ + β₁X₁_i + β₂X₂_i + β₃X₃_i + U_i, with an instrument for Z_i for X₂_i. All of the following variables will be included (on the right- and left-hand side of this regression) in the first stage of two-stage least squares except for which one? A) X₁_i B) X₂_i C) X₃_i D) Y_i

Question

Quizplus · Accepted Answer

The first stage of the two-stage least squares involves regressing the endogenous variable (Y_i) on the instrument (X₂_i) and all other exogenous variables (X₁_i, X₂_i, X₃_i, and Z_i). Therefore, Y_i is not included in the first stage.

Suppose You Are Trying to Estimate the Following Regression: Yi

Suppose You Are Trying to Estimate the Following Regression: Y_i