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Thread: Instrumental variable apporach: two stage least squares

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    Instrumental variable apporach: two stage least squares




    Hello everyone,

    I want to test cross sectional data with a household survey with 60k plus of respondents (however missing data result in overall data loss). The survey asks questions that answer either 0 or 1 or are in likert scale. I already estimated a probit model.

    My simplified model would be:

    y = X1 + X2 + X3 + controls + e

    where X1, X2 and X3 are sociability measures but can all be considered endogenous.

    Therefore, I would like to estimate the model using instrumental variable approach. I have found (possibly weak) instruments, but still want to continue. I have several questions:

    1) Should I instrument all my variables X1, X2 and X3 or should I instrument for example only X1?
    2) Should I leave the original model mostly intact or is it ok to leave out some control variables (to minimize further data loss)?
    3) Should I standardize all variables and then run the IV model or is there some kind of probit version of instrumental variable approach I should use?

    All the best,
    Carlos

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    Re: Instrumental variable apporach: two stage least squares


    Are you able to graph you model and the suspected relationships? Are the control variables confounder or on the propose causal path? Have you done instrumental variable analysis before and understand the logic behind it?
    Stop cowardice, ban guns!

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