Two-stage least squares can be used to
A)identify simultaneous equations.
B)control for heteroskedasticity.
C)account for the time-invariant component of the error term.
D)deal with limited dependent variables.

Question

Quizplus · Accepted Answer

Two-stage least squares (2SLS) is a statistical method that can be used to identify and estimate the parameters of a set of simultaneous equations. It is often used in econometrics when there is endogeneity or omitted variable bias in the model. By using instrumental variables in the first stage, 2SLS can estimate the parameters of the endogenous variables, and then use these estimates to compute consistent estimates of the remaining parameters in the second stage. Therefore, option A is the best choice. Options B, C, and D are not applicable for the 2SLS method.

Two-Stage Least Squares Can Be Used to