Question: The model is Y X0e with E[Ze] 0. An economist wants to obtain the 2SLS estimates and standard errors for . He uses

The model is Y Æ X0¯Åe with E[Ze] Æ 0. An economist wants to obtain the 2SLS estimates and standard errors for ¯. He uses the following steps

• Regresses X on Z, obtains the predicted values bX.

• Regresses Y on bX, obtains the coefficient estimate b¯ and standard error s( b¯) from this regression.

Is this correct? Does this produce the 2SLS estimates and standard errors?

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