Dear statalisters,
I am currently trying to get to know to the 2SLS method.
Among many things I am wondering, if it is possible to include
non-linear items (e.g. squared or cubic) in a 2SLS model.
Let's take the following equation as an example:
ivregress 2sls tobinsq (cr5= netincome5yr volatilityofsales
totalassets industry) rndtosales
Let's assume I would like to investige a curvilinear effect of cr5.
How could I manage to do that?
In a standard OLS regression I would create the variable cr5_sqr
containing the squared value of cr5 (gen cr5_sqr = cr5^2).
However, if I square the cr5 variable in the 2SLS I am probably
messing with the effect of the instruments.
Any suggestions?
All the best
Christian
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