I am running a panel corrected standard errors (PCSE) model for panel data to mitigate the effects of HPAC in the error term. However, one of the explanatory variables is endogenous at a 10% level of significance (and not at 5%) as per ivreg2 command used after xtset. Can someone guide how this variable needs to be adjusted in the PCSE model?
M. Kamraju
The best way to deal with endogeneity concerns is through instrumental variables (IV) techniques. The most common IV estimator is Two Stage Least Squares (TSLS). IV estimation is intuitively appealing, and relatively simple to implement on a technical level.
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