Re: st: reg3 and estimation problem

 From Mark Schaffer To statalist@hsphsun2.harvard.edu, "Mooi, E.A. (Erik)" Subject Re: st: reg3 and estimation problem Date Mon, 17 May 2004 13:41:32 +0100 (BST)

```Erik,

Quoting "Mooi, E.A. (Erik)" <emooi@feweb.vu.nl>:

> Dear Statalisters,
>
> I would like to estimate a model using the reg3 procedure. I have
> two equations, one where performance is dependent upon
> innovativeness and 8 other variables, and innovativeness which is
> dependent upon the same 8 variables.

It looks like you have an identification problem.  You have 2 endogenous
variables (faa and fab), each with its own equation, and 8 exogenous
variables.  Both the faa and the fab equation have 9 regressors, one
endogenous and 8 exogenous.  Your structural model has 2x9=18 structural
coefficients.  If you write the model in reduced form with just exogenous
variables on the RHS, you have 2 RF equations x 8 exogenous regressors =
16 RF coefficients.  18 > 16, so the model is underidentified.  Each
equation taken individually is also underidentified, because you don't
have any exogenous variables that are excluded from either of the
equations.

What you need are some exclusion restrictions that identify the model.
For example, if fak were a regressor in the fab eqn but not the faa
equation, you could use it as an excluded instrument for fab; the faa
equation would be identified and estimable [estimatable?] using single-
equation IV.  To estimate the system using 3SLS, you would also need at
least one exclusion restriction that identifies the fab equation as well.

--Mark

> The instruments at my disposal
> are theoretically not very good.
>
> Thus using the 3SLS estimation procedure does not appear to be a
> very good option. OLS is technically possible but since the errors
> are correlated in the model described above the OLS assumptions are
> violated. Doe anyone know of a way to estimate the problem described
> above?
>
> Regards,
>
> Erik A. Mooi
>
> PS: the stata model is: reg3 (faa = fab fac fae faf fag fah fai faj2
> fak) (fab = faa  fac fae faf fag fah fai faj2 fak), nodfk corr
> (unstructured) ols    where faa is performance and fab
> innovativeness.
>
>
>
> Vrije Universiteit Amsterdam
> Department of Marketing
> De Boelelaan 1105
> 1081 HV Amsterdam
> The Netherlands
> Tel: 031204449862
> Fax: 031204446005
> http://staff.feweb.vu.nl/emooi/
>
> *
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>

Prof. Mark Schaffer
Director, CERT
Department of Economics
School of Management & Languages
Heriot-Watt University, Edinburgh EH14 4AS
tel +44-131-451-3494 / fax +44-131-451-3008
email: m.e.schaffer@hw.ac.uk
web: http://www.sml.hw.ac.uk/ecomes
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