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st: ivreg with an interaction

From   "Sewin Chan" <>
To   <>
Subject   st: ivreg with an interaction
Date   Tue, 26 Nov 2002 14:38:02 -0500


I am trying to estimate the following model using instrumental variables.
The final stage has two independent variables of interest, plus an
interaction between them:

Z = aX + bY + c(X*Y) + more variables

I want to instrument variable X in a first stage regression using a set of
instruments that contain Y and some other variables that are not in the
final stage.  Of course the variable X*Y will have to reflect this
instrumenting as well.

How can I use ivreg to do this?   I can't figure out how I can use the first
stage to predict X, and then use it in the final stage both by itself and as
an interaction.

If ivreg can't do this, I know I can still get coefficients by estimating 2
separate regressions in sequence using the predicted values of X in the
final stage, but how do I correct the standard errors?  To make things more
complicated, I also want to use robust and cluster( ).

Thank you for any suggestions.

Sewin Chan

Assistant Professor of Public Policy
New York University

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