## 3SLS: Three-Stage Least Squares

The Three-Stage Least Squares or 3SLS is applied to simultaneous equation models. It is different from single equation methods like Indirect Least Squares (ILS) and 2SLS because it is applied…

## Indirect Least Squares Estimation

The Indirect Least Squares (ILS) is a method used to estimate simultaneous equation models that are exactly identified. Moreover, it is a single equation method because it is applied to…

## Identification: Rank and Order Conditions

A simultaneous equation model is said to be identified if we can obtain unique estimates of the coefficients in the model. The equations in identified models have a unique structure…

## Simultaneous Equation Bias

The OLS and other single equation models assume that variables treated as independent variables are exogenous. This implies a one-way relationship between independent and dependent variables. It is assumed that…

## Test of Overidentifying Restrictions: Sargan Test

The Sargan Test of Overidentifying Restrictions is applied to check the validity of the instruments used in simultaneous equation models. As the name suggests, it is applicable to overidentified model…

## Two-Stage Least Squares (2SLS) Estimation

The Two-Stage Least Squares or 2SLS is used to estimate simultaneous equation models or system of equations. 2SLS uses a single equation approach. This means that each equation in the…

## Test of Endogeneity: Durbin-Wu-Hausman Test

The Durbin-Wu-Hausman Test of Endogeneity is used to determine whether the endogenous regressors in a simultaneous equation model are truly endogenous. Simultaneous equation models include both endogenous and exogenous variables.…

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