Economics 310

Lecture 20Two Stage Least Squares

Two Stage Least Squares Want Unique Estimates with over-

identified equations Want to use all information in

system’s data set. Two stage least squares allows us

to use all exogenous variables and still get unique estimates.

Understanding identificationInstrumental Variable estimation

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|_2sls y ylag i (ylag, clag, qlag, r, p)

TWO STAGE LEAST SQUARES - DEPENDENT VARIABLE = Y

5 EXOGENOUS VARIABLES

2 POSSIBLE ENDOGENOUS VARIABLES

51 OBSERVATIONS

R-SQUARE = 0.9975 R-SQUARE ADJUSTED = 0.9974

VARIANCE OF THE ESTIMATE-SIGMA**2 = 1750.8

STANDARD ERROR OF THE ESTIMATE-SIGMA = 41.843

SUM OF SQUARED ERRORS-SSE= 84040.

MEAN OF DEPENDENT VARIABLE = 7301.2

VARIABLE ESTIMATED STANDARD T-RATIO PARTIAL STANDARDIZED ELASTICITY

NAME COEFFICIENT ERROR 48 DF P-VALUE CORR. COEFFICIENT AT MEANS

YLAG 1.0053 0.1125E-01 89.35 0.000 0.997 0.9818 0.9972

I 0.10274E-01 0.4928E-02 2.085 0.042 0.288 0.0319 0.0024

CONSTANT 3.3871 75.70 0.4474E-01 0.964 0.006 0.0000 0.0005

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