Two-stage least squares can be executed:
A) only with advanced software.
B) only on small samples.
C) straightforwardly by combining two separate regressions.
D) only with panel data sets.

Question

Quizplus · Accepted Answer

Two-stage least squares involves first regressing the endogenous variable(s) on the exogenous variables and instruments, and then using the predicted values from this regression as the new "exogenous" variable(s) in a second regression of the endogenous variable on these predicted values and the remaining exogenous variables. This can be done by simply running two separate regressions and using the predicted values from the first as inputs in the second, so it can be done straightforwardly without advanced software or panel data sets.

Two-Stage Least Squares Can Be Executed