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st: overidxt with random effects


From   Katie Winder <klwinder@jhu.edu>
To   statalist@hsphsun2.harvard.edu
Subject   st: overidxt with random effects
Date   Tue, 07 Sep 2004 10:43:21 -0400

Dear Stata list,
I am estimating a wage equation with some endogenous regressors using a
random effects model (because a correction I am using later on for selection
bias requires it rather than fe), so I happily went about estimating
xtivreg, re.  But, as I'm sure you all know, overidxt only works after fe.
The Sargan stat returned after fitting the fixed effects model is good, and
my instruments are on okay grounds theoretically, but I'm still concerned
that I can't test them directly in the random effects model (plus, it looks
strange if I report a statistic in one table and not another).

So, my question is: Does anyone have a suggestion about how I can test the
overidentifying restrictions in a random effects IV model?

As I've been thinking about this, I've been getting a little confused about
how I would do this.  I think I need to use Hansen's J statistic instead of
Sargan's because there will be intra-person correlation in the error terms
using re.  So, I can get the clustered weighting matrix from the xtivreg, re
residuals, and then use the instruments Z after putting them through the GLS
transform to construct J.  I think I can modify the xtivreg ado file to do
this, but I am not even sure if this is what I want to do (and plus, given
my programming skills, it will not be pretty).

I'd appreciate anyone's feedback on this, particularly Steve Stillman, since
I know he is an expert on this stuff and is often on the list.

Thanks!
Katie Winder
Johns Hopkins U.
Dept. of Economics

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