I believe this should be scripted, it is not standard two-stage least
squares.
Regress X1 on Z1 and Z2 and obtain the fitted values, say X1_f
Regress X2 on Z3 and Z4 and obtain the fitted values, X2_f
Regress Y on a constant and X1_f, X2_f, Ψ1,Ψ2.
Alecos Papadopoulos PhD
Affiliate Researcher
Dpt of Economics, Athens University of Economics and Business
Foundation for Economic and Industrial Research (IOBE)
web: alecospapadopoulos.wordpress.com/
ORCID:0000-0003-2441-4550
On 10/8/2023 20:21, elf...@yahoo.gr wrote:
Consider the following 2SLS model:
Y= b0 +b1X1+b2X2+θ1Ψ1+θ2Ψ2+e
Where:
Y represents the dependent variable,
X1, X2 denote the endogenous variables,
Ψ1,Ψ2 represent the exogenous variables.
To address endogeneity in the model, a set of four instruments, is introduced.
Two instruments (Z1 and Z2) are employed to instrument for X1, while two other
instruments (Z3 and Z4) are used to instrument for X2.
My question is: How Gretl understand which instrument stands for which
endogenous variable?
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