Question

Question 15

Which of the following cases are true?

	A.	the Two Stage Least Squares estimation can be used if the number of instrument variable is less than the number of endogenous variable.
	B.	whether the Two Stage Least Squares estimation can be used does not depend on the number of instrument variable and endogenous variable.
	C.	the Two Stage Least Squares estimation can be used if the number of instrument variable is equal to the number of endogenous variable.
	D.	the Two Stage Least Squares estimation can be used if the number of instrument variable is larger than the number of endogenous variable.

Answer 1

When we have the same number of endogenous and instrumental variables, we say the endogenous variables are just identified. When we have more instrumental variables than endogenous variables, we say the endogenous variables are over-identified. In this case, we need to use “two stage least squares” (2SLS) estimation.

The cases that are true :

ans-> D) the Two Stage Least Squares estimation can be used if the number of instrument variable is larger than the number of endogenous variable.