Here's the issue. I have a model with a predictor that has been well-established to be endogenous. I have a series of instruments that I'm using to gradually strip away that endogeneity. There is reason to believe that the coefficient on the endogenous predictor (and by extension, the IV) might have a quadratic form.
But I'm not sure how to implement the quadratic form of the IV along with the linear form in the same model. That is, the model would have two endogenous predictors and two instruments. Is that possible? I've read some posts discussing this topic, as well as the MHE blog post saying not to do it. If this really is not recommended, what would be an alternative? Just running the quadratic term?
Thanks!
But I'm not sure how to implement the quadratic form of the IV along with the linear form in the same model. That is, the model would have two endogenous predictors and two instruments. Is that possible? I've read some posts discussing this topic, as well as the MHE blog post saying not to do it. If this really is not recommended, what would be an alternative? Just running the quadratic term?
Thanks!
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