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st: Re: ivreg

From   baum <>
Subject   st: Re: ivreg
Date   Sat, 07 Sep 2002 10:01:51 -0400

--On Saturday, September 7, 2002 2:33 -0400 Konstantin wrote:

I need to estimate an instrumental variables regression. I have got two
repressors, but I need the instrument only for one. How can I do it using
the Stata?

When I use ivreg command, for example,

ivreg demand oil (demand_1=demand_2 oil_1)

I need the instrument only for demand_1, not for oil. But the Stata
interprets oil as an instrument for demand_1 too.
instrumental variables involves a matrix of regressors X and a matrix of instruments Z. All variables considered exogenous (or predetermined) are in Z. Some may also be in X. In your case

X = (oil demand_1 _cons)
Z = (oil demand_2 oil_1 _cons)

There is no one-to-one correspondence between regressors and instruments. All elements of Z are being used to generate the 'X-hat' matrix; that is, each column of X is regressed on the elements of Z. This is not a whim of Stata's design; it is inherent in the notion of an IV estimator.


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