Results 1 to 2 of 2

Thread: Two Stage Least Squares

  1. #1
    Junior Member
    Nov 2009

    Two Stage Least Squares

    You are given a dependent variable y, and independent variable x such that the regression would be ( x and y are endogenous):
    y=\beta_{0} + \beta_{1}x + \epsilon

    There is the possibility that the coefficients estimated from the model is affected by x and y having measurement errors in them.
    You are also given the lagged (by one period) dataset of x and y (x_1 and y_1 respectively).

    How would you go about fixing this error?

    May I ask if my approach is correct?
    I would use the lagged data to estimate the true values of x & y, so that the errors are no longer correlated so that the model would look as follows

    y_1=\beta_{0} + \beta_{1}x_1 + \epsilon \\ x = x_1 + u_{1} \\ y = y_{1} + u_{2}

    Then this would be the equivalent of running a two way least squares regression with x_{1} and y_{1} as instrumental variables?

    Thank you in advance for any feedback

    Last edited by lindah; Aug 28th 2011 at 12:27 AM.
    Follow Math Help Forum on Facebook and Google+

  2. #2
    May 2011
    Sacramento, CA

    Re: Two Stage Least Squares

    I would have to look it up to confirm your approach, but it sounds like the correct approach in applying a two-stage OLS using the autocorrelation to account for the measurement error. I've just never seen it used like that (due to my ignorance, not because I can say it isn't used like that). If you don't get additional help here, I'd also query at the talk stats forums.
    Follow Math Help Forum on Facebook and Google+

Similar Math Help Forum Discussions

  1. Probability - two stage experiment
    Posted in the Statistics Forum
    Replies: 2
    Last Post: Oct 15th 2010, 12:25 PM
  2. Replies: 1
    Last Post: Mar 4th 2010, 01:30 PM
  3. Multi Stage Random Sampling
    Posted in the Statistics Forum
    Replies: 0
    Last Post: Apr 28th 2009, 03:35 PM
  4. 3-stage Feistel Cipher
    Posted in the Discrete Math Forum
    Replies: 1
    Last Post: Apr 7th 2009, 06:42 AM
  5. How do you get from one stage to the other.
    Posted in the Algebra Forum
    Replies: 1
    Last Post: Dec 18th 2008, 01:42 PM

Search Tags

/mathhelpforum @mathhelpforum