Consider the regression model yi = β1 + β2x2i + β3x3i + ei where 4:3,. is endogenous and 71:2, is exogenous. Two potential instruments, zi , and are available.
Open this data set in Gretl and estimate the model using the 2SLS approach and both instruments.
In order to get full marks for this question, you will need to estimate the first stage regression and the second stage regression separately using the OLS procedure.
(a) Enter the estimate of the intercept term of the first stage regression in the box below (rounded to 3 decimal places).
(b) Enter the 25LS estimate of t3L in the box below (rounded to 3 decimal places).
(c) Doyou think the instruments are weak or strong?