AbstractThis paper is concerned with some computational aspects of Fisher's simultaneous‐equation estimator in its modified version [15] and with the alternative of using this computational scheme as the first stage of the two‐stage instrumental variables (2 SIV) estimator [1, p. 11]. The main disadvantage of the above estimation process arises out of the repeated investigation of a given set of instruments to determine how significantly some of their combinations contribute to R̄2. A short‐cut procedure that eliminates this computational inconvenience is suggested in this paper. The new method treats the problem within the framework of operations research, i.e., by isolating the optimum combination through the shortest way possible. The resulting step‐wise algorithm leads to the optimum combination of the given instrumental variables in, at most, n steps, where n is the number of instruments. The results of the application of this procedure to the estimation of the Ontario Econometric Model [9] are discussed, tested and compared with other methods of es