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st: RE: Testing for endogeneity with ivreg2


From   "Steven Stillman (LMPG)" <Steven.Stillman@lmpg.dol.govt.nz>
To   "'statalist@hsphsun2.harvard.edu'" <statalist@hsphsun2.harvard.edu>
Subject   st: RE: Testing for endogeneity with ivreg2
Date   Fri, 25 Jul 2003 12:32:39 +1200

Jim,
You are 90% of the way to getting your endogeneity test.  As you state, HOLS
is the appropriate alternative for GMM IV.  To test for endogeneity in this
context, run the HOLS model with your suspect endogenous variable in the
orthog option.  So in your example the syntax would be:

ivreg2 y1 ( = x4 x5) x1 x2 x3 , gmm robust cluster(subjid) orthog(y2)

Steve






> -----Original Message-----
> From:	Shaw, Jim (NIH/NCI) [SMTP:shawjim@mail.nih.gov]
> Sent:	Thursday, July 24, 2003 11:10 PM
> To:	Statalist (E-mail)
> Subject:	st: Testing for endogeneity with ivreg2
> 
> Dear Statalist:
> 
> Does anyone know how the orthog option is used to test for endogeneity
> with
> ivreg2?  Suppose I have 2 models (with clustering) where
> 
> y1 = y2 + x1 + x2 + x3
> 
> and 
> 
> y2 = x1 + x4 + x5
> 
> Using ivreg2 to estimate the first model via GMM, the command would look
> something like this:
> 
> ivreg2 y1 (y2 = x4 x5) x1 x2 x3 , gmm robust cluster(subjid)
> 
> I would like to test whether y2 is orthogonal to the errors.  My
> understanding is that, if that were the case, OLS would be consistent and
> more efficient than the IV estimator.  Actually, I suspect that the OLS
> alternative to the GMM IV estimator would be heteroscedastic OLS (HOLS).
> Is
> this correct?
> 
> --
> James Shaw
> Research Associate
> College of Pharmacy
> The University of Arizona
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