Master 2-Stage Least Squares Without Any Mathematics

Name: Master 2-Stage Least Squares Without Any Mathematics
Rating: 4.5 (57 reviews)

Learn the intuition of logic of 2-Stage Least Squares Without Any Mathematics At All!

Created byDavid Tan

Last updated 3/2016

English

What you'll learn

Understand the endogeneity bias
Understand how the 2-Stage Least Squares model can mitigate the endogeneity bias
Identify potential instrumental variables for the 2-Stage Least Squares model
Understand the mechanics of the Durbin Wu-Hausman Test for endogeneity
Understand how to test for the strength and validity of instrumental variables
Estimate the 2-Stage Least Squares model in Stata and EViews
Conduct the diagnostic tests of the 2-Stage Least Squares model in Stata and EViews
Excel in their formal learning of the 2-Stage Least Squares model by building upon what is learnt in this course

Course content

6 sections • 26 lectures • 2h 1m total length

Introduction to Section 11:05
A quick introduction to this Section and how to use the material in this course.
Correlation vs Causation2:57
Fundamental to the understanding of 2SLS is the difference between causation and correlation. The purpose of OLS and 2SLS regressions is to examine causality, not correlation. So let's make sure we understand the difference!
The Assumption of Strict Exogeneity1:30
The assumption of exogeneity is vital for OLS regressions. In this Lecture, we will understand exactly what exogeneity is and why it is important for OLS regressions.
The Endogeneity Bias3:45
In this Lecture, the endogeneity bias is presented in an intuitive and completely non-technical manner. Using a simple and relate-able example, the endogeneity bias is clearly illustrated and its impact on OLS regression coefficient estimates is discussed.
The Fix: An Instrumental Variable1:04
The instrumental variable (IV): The magic bullet that will eliminate the endogeneity bias. What makes it so special? How do we identify a possible IV?

Let's find out!
Introducing the 2-Stage Least Squares Model4:08
Lets walk through the logic of the famous 2-Stage Least Squares model, and discuss exactly how it eliminates the endogeneity bias. Its so simple yet elegant!
Hunting for an Instrument for Wages and Education1:43
In this Lecture, we discuss the thought process of finding a potential instrument. We uncover a possible instrument variable for the classic Wages and Education relationship, and walk you through the theory of justifying a potential instrument.
Testing the Strength of the Instrumental Variable1:09
What is a strong instrument? In this Lecture, we discuss how you can formally test the strength of an instrument to ensure that is gets the job done!
Testing the Validity of the Instrumental Variable0:55
This Lecture discusses the Test for Overidentifying Restrictions and why it is vital in checking the validity of the instrumental variable. If an instrument is invalid, then your 2-Stage Least Squares estimates will be incorrect! This test is crucial for your rseearch!
Testing for Endogeneity1:47
The Durbin and Wu-Hausman test is the classic test of endogeneity in a regression model. That is, do we even need 2-Stage Least Squares at all? When should we use 2SLS or a simple OLS regression? The results of this test will inform us which type of regression model is needed.

This test is important and should be conducted in all research projects employing instrumental variables.

Introduction to Section 21:27
A quick introduction to Section 2 and Stata.
Stata: Importing Data2:33
In this Lecture, I walk you through the process of importing empirical data from Excel to Stata. We do this for the Wages and Education example.
Stata: Estimating an OLS Regression5:46
We first conduct an OLS regression that assumes strict exogeneity. We will use these results to compare to our 2SLS results to observe any differences once endogeneity is accounted for. This is a neat way to showcase the power of the 2SLS model.
Stata: Estimating the 2-Stage Least Squares Regression2:15
Lets estimate the 2-Stage Least Squares model in Stata and interpret its coefficients. Have they changed much form the OLS model? What does this mean?
Stata: Conducting the Diagnostic Tests of the 2SLS Model3:37
In this Lecture, I will walk you through the process of testing for the strength and validity of the instruments, and the test for endogeneity. These diagnostic tests are crucial for any research project using 2SLS, so don't forget them!
Stata: A Second Example Using Airfares Data9:17
This Lecture walks you through another 2SLS example: passenger demand and airfares. Again, we will walk through the process of estimating an OLS regression, a 2SLS regression, then testing for the strength and validity of the instrument and, finally, testing for endogeneity. I'll also show you how to create dummy variables in Stata.

After this example, you'll be an expert at conducting 2SLS in Stata!

Introduction to Section 30:33
What you'll get out of Section 3!
EViews: Importing Data0:53
How to import the Wages and Education data from Excel to EViews. It's a walk in the park!
EViews: Estimating an OLS Regression1:42
We walk through the process of estimating an OLS regression model in EViews. We do this so we can compare the estimates with the 2SLS model in the following Lecture. Any differences observed is likely to be due to the endogeneity bias and the breakdown of the strict exogeneity assumption.
EViews: Estimating the 2-Stage Least Squares Regression1:38
Lets estimate the 2-Stage Least Squares model and compare the results to our OLS regression. EViews is such a simple program to use and the steps are easy to follow. Never has it been so easy to implement such an elegant model!
EViews: Conducting the Diagnostic Tests of the 2SLS Model5:27
In this Lecture, I'll show you, step-by-step, how to test for the strength and validity of an instrument along with the formal test for endogeneity. The tests conducted in EViews are slightly different from those of Stata, so be careful.
EViews: A Second Example Using Airfares Data6:53
We go through a second example using passenger demand and airfares data. Again, we estimate an OLS regression, 2SLS regression, and conduct the tests for a strong and valid instrument and endogeneity. I'll also show you how to create dummy variables in EViews.

Estimating a 2SLS model will be a piece of cake after this example!

The Best Method for Mastering the 2-Stage Least Squares Model2:25
In this Section, I'll discuss the best way to move ahead with your studies after completing this course. By now, you will have a solid understanding of the intuition and logic of 2SLS. You're now ready to learn it formally from your course notes or textbook. I have a whole system of how I learn new econometric methods through textbooks that I will discuss here.

Moreover, this can be applied to all types of econometric models, not just 2SLS.

BONUS MATERIAL:

I've added an article I've written discussing the different forms of endogeneity and appropriate instruments.

Requirements

Basic knowledge of Regression Analysis
Basic understanding of P-Values in Hypothesis Testing

Description

Welcome to my on 2-Stage Least Squares (2SLS). This course is carefully designed for students/researchers who are learning 2SLS for the first time and who are not quantitatively inclined.

In fact, this course is entirely NON-MATHEMATICAL!

This course is perfect for learning the intuition and logic of 2SLS and its corresponding diagnostic tests before formally learning the derivation and mathematics from an econometrics course or textbook.

Moreover, this course covers the application of 2SLS and its diagnostic tests using two of the most popular econometrics software packages, Stata and EViews.

At the end of this course, the student will have a clear understanding of why 2SLS is used and how it is implemented, and be able to estimate a 2SLS model using empirical data.

Who this course is for:

Any student or researcher who is learning the 2-Stage Least Squares model for the first time
Students or researchers who are not quantitatively inclined

Master 2-Stage Least Squares Without Any Mathematics

What you'll learn

Explore related topics

Course content

The Non-Mathematical Theory of 2-Stage Least Squares10 lectures • 20min

Applying 2-Stage Least Squares in Stata6 lectures • 25min

Applying 2-Stage Least Squares in EViews6 lectures • 17min

Tips for Learning 2-Stage Least Squares Formally1 lecture • 2min

Time to Test Your Understanding0

BONUS SECTION: A Primer on OLS Regressions3 lectures • 57min

Requirements

Description

Who this course is for: