Two-Stage Least-Squares Regression

Two-Stage Least-Squares Regression is useful when there are feedback loops in your model. For example, a book club may want to model the amount they cross-sell to members, using the amount that members spend on books as a predictor. However, money spent on other items is money not spent on books, so an increase in cross-sales corresponds to a decrease in book sales. There is a feedback loop between the response and predictor, thus the error in the response is correlated with the predictor.

To know more, go to Standard Edition>Regression>Two-Stage Least-Squares Regression

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