186 IV10b 2SLS vs ILS

This video clarifies the essential terms and relationships in Instrumental Variables (IV) econometrics: Reduced Form, Intent-to-Treat (ITT), and Indirect Least Squares (ILS). We explore the three key regressions in any IV strategy: the first stage, the reduced form, and the structural equation, explaining their roles and how they can be estimated. The video details how the reduced form coefficient, often referred to as the ITT in program evaluation, represents the total effect of an instrument on an outcome. It also explains how Indirect Least Squares recovers the structural coefficient by dividing the reduced form coefficient by the first stage coefficient, providing a transparent way to understand IV estimation, especially in the just-identified case. Visit AxiomTutoring.com and subscribe to @AxiomTutoringCourses.