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Re: st: endogeneity and IV
Quoting Katarina Lynch <firstname.lastname@example.org>:
> Dear Statalist,
> I am trying to inroduce instrumental variables to fix the
> problem caused by fixed and random effects regressions. How can I
> which independent variables are endogenous, i.e. correlated with the
> term? I simply gave the command "pw resid var1 var2 var3 var4" and
> it gave a
> matrix where one of the variables showed a correlation with resid.
That's not how you test for endogeneity. You want use either a Sargan-
Hansen statistic or the Hausman approach (these are sometimes equivalent,
depending on the application).
> Does it
> mean that this variable is endogenous or is there any other way? The
> I am asking this, perhaps, strange question is, in STATA7, the
> command requires predetermined variables in the sense that E(x,
> error) is
The Sargan(-Hansen) stat at the bottom of the xtabond output is a test of
your orthogonality conditions, i.e., that your exogenous independent
variables and instruments are indeed exogenous.
Hope this helps.
> Thank you,
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Prof. Mark Schaffer
Department of Economics
School of Management & Languages
Heriot-Watt University, Edinburgh EH14 4AS
tel +44-131-451-3494 / fax +44-131-451-3008
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