The analysis of two stage least squares method

The first step to obtain the estimates of structural coefficient parameters as a single value in simultaneous equation systems is to identify each equation in the system. In a given equation, different estimation methods are used depending on the identified state. One of these methods is the two-stage least squares method, which is especially applied for overidentified equations. In this study, a money supply-demand model in line with economic theories was established in order to explain the operation of two-stage least squares method. The period of 2004:4-2018:4 Turkish economic data was utilized for the application of this model. At the end of the application, the results obtained by using two stage least square methods is evaluated statistically.