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st: RE: ivreg and indicator variables

From   "Millimet, Daniel" <>
To   <>
Subject   st: RE: ivreg and indicator variables
Date   Wed, 25 Sep 2002 09:41:07 -0500

you need two instruments.  if the indicator x2 is exogenous, then the second instrument should be your original instrument also interacted with x2.  now you can use ivreg.

	-----Original Message----- 
	From: [] 
	Sent: Wed 9/25/2002 9:36 AM 
	Subject: st: ivreg and indicator variables

	Dear stata users,
	I am estimating a model
	y = a + b1x1 + b2x1x2 + b3x3 + e
	x1 and x3 are continuous variables. x2 is an indicator variable taking
	the value 0 or 1. x1 is correlated with the error term e, thus I want
	to estimate this model via two stage least squares. I have an
	instrument z which is correlated with x1.  How do I estimate this model
	in Stata?
	this does not work since I only have one instrument:
	ivreg y (x1 x1x2 = z1) x3
	but is it correct to estimate the first stage, then get the predicted
	value x2hat and to multiply the predicted value with x2, and run a
	regression with
	y = a + b1x1hat + b2x1hatx2 + b3x3 + e
	If this is correct, how do I get the proper standard errors?
	Thanks in advance for your help,
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