An Update and Extension to SEM Guidelines for Administrative and Social Science Research

Among the several approaches proposed for estimating interactions in latent variable models in CBSEM, Bollen and Paxton (1998) and Little et al. (2006) describe procedures that do not require special-purpose software, and so are accessible to all CBSEM users. Bollen and Paxton described an approach using two-stage least squares (2SLS), an analytical approach used in regression to overcome estimation problems which would confound OLS. 2SLS associates each predictor in a regression model with an instrumental variable. In the first stage, each predictor is regressed on its instrument, then in the second stage the ultimate dependent variable is regressed on the expected or predicted portion of each predictor from the first stage.