Let me add on to what Professor Rubin has said. First, yes this is exactly what you might expect to happen with endogeneity. That's why you do 2sls.
Second, in this "just identified" case, 2sls and instrumental variables are the same. Third, DO NOT do 2sls "manually" unless you are familiar with the technique. There is an adjustment to standard errors built into econometric software for 2sls that matters a lot. -Dick Startz On 2 Dec 2003 10:26:55 -0500, [EMAIL PROTECTED] (Herman Rubin) wrote: >In article <[EMAIL PROTECTED]>, >sk <[EMAIL PROTECTED]> wrote: >>Hi everyone, > >>I have two structural equations of the following form: > >>Y1= a Y2+ b X1 >>Y2= c Y1+ d X2 > >>I first etimated these two equations using OLS (i.e. ignoring >>endogeneity). Next I estimated them using 2sls. Essentially what >>happened was the endogeneous variables (Y2,Y1) changed signs (went >>from positive significant to negative significant). I was wondering if >>this was cause for concern. Does it reflect some underlying problems >>with the data/ model? Or is this just an outcome of endogeneity? I >>should mention 3sls produced coefficients with the same signs as 2sls. >>Any insight would be much appreciated. > >If this is your model, there is no need to do anything >that difficult; just use X2 as the instrumental variable >for the first equation, and X1 for the second, or just >run the regression of Y1 and Y2 on X1 and X2 and transform >these regression equations to the desired form. This is >what 2sls and 3sls approximate when X1 and X2 have more >than one element. But in a just identified model, it >is not necessary to approximate. > >OLS is appropriate for prediction ONLY; that is, if you >will get the values of Y2 and X1, and what to predict Y1 >from those, use OLS. It can be far off when it comes to >the structural equations. ---------------------- Richard Startz [EMAIL PROTECTED] Lundberg Startz Associates . . ================================================================= Instructions for joining and leaving this list, remarks about the problem of INAPPROPRIATE MESSAGES, and archives are available at: . http://jse.stat.ncsu.edu/ . =================================================================
