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st: Another method of squaring an instrumental variable
From
Nir Regev <[email protected]>
To
[email protected]
Subject
st: Another method of squaring an instrumental variable
Date
Sat, 5 Jun 2010 15:47:18 +0300
I am trying to estimate an equation of y = x + x^2+u
x is endogenous (which makes x^2 endogenous too) and I have only one
instrumental variable z, which is a dummy.
On a regular case, I would square z and let z and z^2 be the
instrumentals, however, since z is a dummy this is irrelevant.
I believe it is possible to run the first stage of 2SLS where:
x=z+u,
predict x_hat,
square x_hat
and run the second stage both on x_hat and x_hat^2.
I think this is a consistent estimate but my standard errors and
hypothesis tests will no doubt be miscalculated.
Has anyone ever heard of such a method and knows how to fix the standart errors?
Thanks,
Nir Regev
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