IV and Modelling Expectations
Load the data in the usual way
Making a Lag is easy now we want to make a lead (a future variable) this is just making a lag with a negative lag length (-1 for one period ahead)
Change the name to remember its an expectation
The lag variable looses an observation at the begining
The lead variable looses one at the end
First do the two stage least squares model in two stages, begin by constructing the instrument.
Now do the same model in one go by IV
Same coefficients Different standard errors and t stats