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From |
Erasmo Giambona <e.giambona@gmail.com> |

To |
statalist <statalist@hsphsun2.harvard.edu> |

Subject |
st: Economic Intuition of IV estimates |

Date |
Fri, 12 Feb 2010 12:03:30 +0100 |

Dear Statalist, I am trying to gain more economic intuition on IV estimation. I am estimating the following model using a panel dataset of firm-year observations: Leverage Ratio = a + b*Tangible Assets+e. Suppose Tangible Assets is endogenous. My instrument is a proxy for Demand of Tangible Assets (Instrument1). Question 1) If I estimate the model using 2SLS, how do I interpret "b"? In particular, is it possible to state that "b" tells me how Demand of Tangible Assets affects the leverage ratio? Question 2) Suppose I have an additional instrument (e.g., Firm Age - Instrument 2) and let's assume this in unrelated to Leverage Ratio. If I estimate the model again using both Instruments, it seems that "b" does not tell me anymore ONLY how Demand of Tangible Assets affects the leverage ratio. Is my interpretation correct? Any thoughts on the issue is highly appreciated, Erasmo * * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/

**Follow-Ups**:**st: RE: Economic Intuition of IV estimates***From:*"Vincent, David" <david.vincent@hp.com>

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