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st: RE: question on ivreg2


From   "Millimet, Daniel" <millimet@mail.smu.edu>
To   <statalist@hsphsun2.harvard.edu>
Subject   st: RE: question on ivreg2
Date   Tue, 30 Mar 2004 16:24:59 -0600

I'll take a crack at question 3...  There is a large literature on the
perils of using weak instruments (instruments that are only weakly
correlated with the endogenous regressor).  Stock's work seems to be
most insistent on an F-stat above 10, although this depends on the
number of endogenous vars and the number of instruments.  Other tests
may not be so stringent, although certainly a significant t-test at the
5% level in the first-stage (of an exactly identified model) should be a
prerequisite.  If your instrument fails this, find a new instrument.
How?  Therein lies the art of applied work.

Dann


Bound, J., D.A. Jaeger and R.M. Baker, 1995, Problems with instrumental
variables estimation when the correlation between the instruments and
the endogenous explanatory variable is weak, Journal of the American
Statistical Association, 90, 443-450.

Hall, A.R., G.D. Rudebusch and D.W. Wilcox, 1996, Judging instrument
relevance in instrumental variables estimation, International Economic
Review, 37, 283-298.

Shea, J., 1997, Instrument relevance in multivariate linear models: a
simple measure, Review of Economics and Statistics, 79, 348-352.

Staiger, D. and J.H. Stock, 1997, Instrumental variables regression with
weak instruments, Econometrica, 65, 557-586.

----------------------------------------------------------------
Daniel L. Millimet, Assistant Professor
Department of Economics
Box 0496
SMU
Dallas, TX 75275-0496
e-mail: millimet@mail.smu.edu
phone: 214.768.3269
fax: 214.768.1821
web: http://faculty.smu.edu/millimet
----------------------------------------------------------------


> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu 
> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of 
> Ngo,PT (pgr)
> Sent: Tuesday, March 30, 2004 3:41 PM
> To: statalist@hsphsun2.harvard.edu
> Subject: st: question on ivreg2
> 
> 
> Dear Statalisters,
> 
> I would like to send a big thank you to Christopher Baum, 
> Mark Schaffer and Steven Stillman for their excellent, very 
> useful  paper "Instrumental variables and GMM: Estimation and 
> Testing", and for developing ivreg2.
> 
> Could someone help answer questions that arose when I tried 
> to use ivreg2? Pls forgive me if they are basic questions.
> 
> 1- In the examples shown in the help file for ivreg2, the 
> test for heteroskedasticity in IV/GMM estimation is indicated 
> with the option fitlev (fitted values). Why is this option 
> needed ? I obtain different results when including (cannot 
> reject null of homoskestaticity) and omitting (reject null of 
> homoskestaticity) the fitlev option (see output below).
> 
> 2- What are centered and uncentered R-square ? I do not 
> understand why in some of the ivreg I ran, I also obtained 
> negative r-squares.
> 
> 3- I am using ivreg2 on a two-year panel data, on variables 
> that have been first differenced. One variable may be 
> endogenous (criyielA) and would need to be instrumented for. 
> In their paper, Baum et al caution against the use of  
> instrument with little explanatory power and propose a rule 
> of thumb of an F-stat above 10. It is very difficult for me 
> to find relevant excluded instruments and the F-stat is below 
> 10. What would be your advice ?
> 
> Thanks a lot in advance for your help,
> 
> Best regards,
> 
> Thi Minh
> PS: example of output below
> 
> 
> First-stage regressions
> -----------------------
> 
> First-stage regression of criyielA:
> 
> OLS regression with robust standard errors
> ------------------------------------------
> 
>                                                       Number 
> of obs =     3370
>                                                       F( 20,  
> 3349) =     8.20
>                                                       Prob > 
> F      =   0.0000
> Total (centered) SS     =  8667.132874                
> Centered R2   =   0.0414
> Total (uncentered) SS   =  9010.059308                
> Uncentered R2 =   0.0778
> Residual SS             =  8308.706362                Root 
> MSE      =   1.5751
> 
> --------------------------------------------------------------
> ----------------
>              |               Robust
>     criyielA |      Coef.   Std. Err.      t    P>|t|     
> [95% Conf. Interval]
> -------------+------------------------------------------------
> ----------
> -------------+------
> cprod92_lp~e |  -1.64e-07   2.94e-07    -0.56   0.577    
> -7.41e-07    4.13e-07
>  clriceprice |  -1.292931   .1453145    -8.90   0.000    
> -1.577845   -1.008017
>     lanupc92 |  -.0143288   .0106115    -1.35   0.177    
> -.0351344    .0064769
>      chhsize |   .0277972   .0179343     1.55   0.121    
> -.0073661    .0629605
>    chhsizesq |   6.56e-12   6.50e-12     1.01   0.313    
> -6.19e-12    1.93e-11
>        cf04s |   .3489401   .2765587     1.26   0.207    
> -.1933009    .8911811
>        cf59s |   .1901888   .2751527     0.69   0.489    
> -.3492955    .7296731
>      cf1014s |  -.2640732    .254593    -1.04   0.300    
> -.7632467    .2351003
>        cm04s |   .2340304   .3009332     0.78   0.437     
> -.356001    .8240618
>        cm59s |   .7453756   .2718197     2.74   0.006     
> .2124262    1.278325
>      cm1014s |   .5206262   .2808137     1.85   0.064    
> -.0299575     1.07121
>    croadnew8 |  -.1269749   .0570803    -2.22   0.026    
> -.2388907   -.0150591
>   cmarketdis |   .0301164   .0061014     4.94   0.000     
> .0181536    .0420793
>     croadist |  -.0026464   .0052559    -0.50   0.615    
> -.0129515    .0076587
>      cm1555s |   .3649849   .1925192     1.90   0.058    
> -.0124822     .742452
>   cirrignew8 |   .2189353   .0634521     3.45   0.001     
> .0945265    .3433441
>       cpest4 |   .3339898   .0771071     4.33   0.000      
> .182808    .4851715
>       cpest5 |  -.1898401   .0683461    -2.78   0.006    
> -.3238443   -.0558359
>       cpest6 |   -.092264   .0772317    -1.19   0.232    
> -.2436902    .0591621
>       cpest7 |  -.1746922   .0659641    -2.65   0.008    
> -.3040261   -.0453583
>        _cons |   .5711068    .075765     7.54   0.000     
> .4225564    .7196571
> --------------------------------------------------------------
> ----------------
> Partial R-squared of excluded instruments:   0.0122
> Test of excluded instruments:
>   F(  6,  3349) =     6.71
>   Prob > F      =   0.0000
> 
> Summary results for first-stage regressions:
> 
>                 Shea
> Variable      Partial R2      Partial R2       F(  6,  3349)  
>   P-value
> criyielA        0.0122          0.0122              6.71      
>    0.0000
> 
> NB: first-stage F-stat heteroskedasticity-robust
> 
> 
> 
> GMM estimation
> --------------
> 
>                                                       Number 
> of obs =     3370
>                                                       F( 15,  
> 3354) =    33.06
>                                                       Prob > 
> F      =   0.0000
> Total (centered) SS     =  76.61568406                
> Centered R2   =   0.0439
> Total (uncentered) SS   =  107.2221951                
> Uncentered R2 =   0.3168
> Residual SS             =  73.24985164                Root 
> MSE      =  .147431
> 
> --------------------------------------------------------------
> ----------------
>              |               Robust
>   cpovgapsqi |      Coef.   Std. Err.      z    P>|z|     
> [95% Conf. Interval]
> -------------+------------------------------------------------
> ----------
> -------------+------
>     criyielA |  -.0372633   .0151439    -2.46   0.014    
> -.0669447   -.0075819
> cprod92_lp~e |  -1.10e-07   1.62e-08    -6.77   0.000    
> -1.42e-07   -7.82e-08
>  clriceprice |  -.0717184   .0223985    -3.20   0.001    
> -.1156187    -.027818
>     lanupc92 |   .0008063   .0010795     0.75   0.455    
> -.0013095    .0029222
>      chhsize |   .0211054   .0020391    10.35   0.000     
> .0171089    .0251019
>    chhsizesq |   4.74e-12   1.58e-12     3.01   0.003     
> 1.65e-12    7.82e-12
>        cf04s |   .2742387   .0270709    10.13   0.000     
> .2211807    .3272968
>        cf59s |   .1364704   .0249785     5.46   0.000     
> .0875134    .1854273
>      cf1014s |   .0050872   .0224207     0.23   0.821    
> -.0388565    .0490309
>        cm04s |   .2357753   .0265897     8.87   0.000     
> .1836604    .2878901
>        cm59s |   .1237924   .0246343     5.03   0.000       
> .07551    .1720747
>      cm1014s |   .0513214   .0219281     2.34   0.019     
> .0083432    .0942996
>    croadnew8 |  -.0090448   .0052677    -1.72   0.086    
> -.0193692    .0012797
>   cmarketdis |  -.0017687   .0007171    -2.47   0.014    
> -.0031742   -.0003632
>     croadist |  -.0009817   .0003324    -2.95   0.003    
> -.0016332   -.0003301
>        _cons |  -.0559418   .0106129    -5.27   0.000    
> -.0767427   -.0351409
> --------------------------------------------------------------
> ----------------
> Hansen J statistic (overidentification test of all 
> instruments):         4.301
>                                                    Chi-sq(5) 
> P-val =   0.50693
> -orthog- option:
> Hansen J statistic for unrestricted equation:                 
>            0.000
>                                                    Chi-sq(1) 
> P-val =   0.98983
> C statistic (exogeneity/orthogonality of specified 
> instruments):         4.301
>                                                    Chi-sq(4) 
> P-val =   0.36681
> Instruments tested: cpest4 cpest5 cpest6 cpest7
> --------------------------------------------------------------
> ----------------
> Instrumented:  criyielA
> Instruments:   cm1555s cirrignew8 cpest4 cpest5 cpest6 cpest7 
> cprod92_lprice
>                clriceprice lanupc92 chhsize chhsizesq cf04s 
> cf59s cf1014s cm04s
>                cm59s cm1014s croadnew8 cmarketdis croadist
> --------------------------------------------------------------
> ----------------
> 
> . ivhettest, all
> IV heteroskedasticity test(s) using levels and cross products 
> of all IVs
> Ho: Disturbance is homoskedastic
>     Pagan-Hall general test statistic   : 311.008  
> Chi-sq(224) P-value = 0.0001
>     Pagan-Hall test w/assumed normality : 417.918  
> Chi-sq(224) P-value = 0.0000
>     White/Koenker nR2 test statistic    : 469.100  
> Chi-sq(224) P-value = 0.0000
>     Breusch-Pagan/Godfrey/Cook-Weisberg : 636.519  
> Chi-sq(224) P-value = 0.0000
> 
> . ivhettest, all fitlev
> IV heteroskedasticity test(s) using fitted value (X-hat*beta-hat)
> Ho: Disturbance is homoskedastic
>     Pagan-Hall general test statistic   :   1.444  Chi-sq(1) 
> P-value = 0.2296
>     Pagan-Hall test w/assumed normality :   1.957  Chi-sq(1) 
> P-value = 0.1619
>     White/Koenker nR2 test statistic    :   1.495  Chi-sq(1) 
> P-value = 0.2214
>     Breusch-Pagan/Godfrey/Cook-Weisberg :   2.029  Chi-sq(1) 
> P-value = 0.1543
> 
> . 
> 
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