Two-stage least squares can be used to
A)control for heteroskedasticity.
B)control for measurement error in an independent variable.
C)deal with limited dependent variables.
D)account for the time-invariant component of the error term.

Question

Quizplus · Accepted Answer

Two-stage least squares is commonly used to control for measurement error in an independent variable. In this technique, instrumental variables are used to estimate the relationship between the independent variable and the dependent variable. This can help to address bias that arises from measurement error in the independent variable, which can lead to inconsistent estimates in a regular regression model.

Two-Stage Least Squares Can Be Used to