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st: ivreg2 Griliches example instrument validity
I have been running the examples provided at the end of the documentation
for ivreg2 using the Griliches data (Wages of very young men, JPE '76), and
I have trouble interpreting the results of the tests for instrument
validity. The model is
ivreg2 lw s expr tenure rns smsa _I* (iq=med kww age mrt)
The tests for joint validity of the list of instruments (Sargan, Basman,
pseudo-S, pseudo-B, Hansen J in the case of GMM) all reject the null, ie
the excluded instruments are NOT jointly valid. Is this interpretation
The orthog(age mrt) option further tests whether the subset (age mrt) of
instruments is valid
ivreg2 lw s expr tenure rns smsa _I* (iq=med kww age mrt), gmm orthog(age
The C statistic rejects the null, implying that (age mrt) are NOT valid.
At the same time the Hansen J for the UNrestricted equation now fails to
reject its null, implying that the complementary subset of instruments (kww
med) ARE valid. Is this interpretation correct ?
Now I ran the same regression with the orthog option on the complementary
subset (kww med), ie
ivreg2 lw s expr tenure rns smsa _I* (iq=med kww age mrt), gmm orthog(kww
In view of the above, I expected the Hansen J on the unrestricted model to
reject its null, and the C statistic not to reject its null. The former
expectation is confirmed, but the C statistic does reject, implying that
(kww med) are NOT valid. Is this not a contradiction to the Hansen J test
result above, which seemed to suggest that (kww med) are valid ?
Leaving aside the Hansen J results, the C results would suggest that none
of the (two pairs of) instruments are valid. But when I ran the regressions
with only (age mrt) and only (kww med) used as excluded instruments, ie
ivreg2 lw s expr tenure rns smsa _I* (iq=age mrt), gmm
ivreg2 lw s expr tenure rns smsa _I* (iq=kww med), gmm
the Hansen J failed to reject the null in both cases , suggesting that both
subsets ARE valid instruments ?!
So what am I missing here ?
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