Econometrica Vol. 39 No. 3 1971
Estimating a Structural Equation in a Large System
Abstract
In two stage least squares estimation, when the matrix Z of predetermined variables has less than full column rank, Z'Z is singular. It is shown that in this situation 2SLS still can be used and that Y-the result of the first stage-is still uniquely determined; also shown is that 2SLS will often be equivalent to OLS. IN A LARGE SYSTEM containing many equations and many predetermined variables, it is a common occurrence to find that the second moment matrix involving all of the predetermined variables in the system is singular. It seems to be a widely held opinion among econometricians that such singularity prevents estimation of a structural equation by standard methods employing all of the predetermined variables. For example, with specific reference to the method of two stage least squares, we find in two outstanding texts the following statements:
- DOI
- 10.2307/1913260
- Volume
- 39
- Issue
- 3
- Pages
- 461
- Sources
- bibtex:phds-export.bib crossref openalex