The Second-Stage in an Instrumental Variable Approach to Identify Simultaneous

Multiple Choice

The second-stage in an instrumental variable approach to identify simultaneous equations is to

A) include the residuals and the residuals squared from the first-stage in the second-stage estimation.
B) estimate the regression model and use the results to predict the simultaneously determined independent variables.
C) estimate the individual equations including the predicted values of the simultaneously determined independent variables on the right hand side of the equation.
D) include the predicted values of the dependent variables in the second-stage regressions and regress those predictions on the endogenous and exogenous variables.