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> Andrea,
> 
> I'm not an xtabond(2) expert, but ...
> 
> One way to think about the Sargan stat in xtabond(2) is that it indicates 
> that your instrumenting is OK from the point of satisfying the 
> orthogonality conditions.  That is, your instruments are "valid".
> 
> It does *not* tell you directly about what regressors, if any, actually 
> need any instrumenting in the first place.
> 
> In the simple IV context, this second question can be addressed using a Wu-
> Hausman endogeneity test, or, equivalently in this context, a C or 
> difference-in-Sargan test.
> 
> In your xtabond(2) application, you could also do a difference-in-Sargan 
> test "by hand".  Say you have two specifications.  One treats more 
> variables as endogenous, and passes the Sargan test.  You want to know if 
> you can treat some of these variables as exogenous, and so you have a 
> second specification that does this but is otherwise identical (same 
> number of obs, same variables, etc - but note this can be tricky to get 
> right in practice).  You run this second spec and take the difference 
> between its Sargan and the Sargan from the first spec.  If the difference 
> is "big" (i.e., reject the null if it's above a chi-sq critical value with 
> #dofs=#vars being tested for exogeneity), you conclude that these 
> variables are endogenous and needed instrumenting after all.  If the 
> difference is small, then you didn't need to instrument them and you can 
> go with your second spec.
> 
> Hope this helps.
> 
> --Mark
> 
> Quoting sistoand80 <sistoand80@libero.it>:
> 
> > Dear Mark,
> > i need some suggestions about the problem of over-identifying
> > restrictions. If I tape
> > 
> > xtabond y X
> > 
> > stata instruments Ld.y with its own lags (in level) from t-3 to t
> > and, if you think at X as a vector of exogenous variables, d.X. The
> > degree of freedom of sargan test is the number of instruments minus
> > 1 (the variable instrumented). If, in this case, the sargan reject
> > the null hypothesis, it would mean that X are not fully exogenous or
> > I would expect this result as the lagged dependent variable has been
> > instrumented only with its own lags?
> > 
> > If I tape
> > 
> > xtabond y, pre(X)
> > 
> > stata would instrument Ld.y with lags of y and X in level (y from
> > t-3 and X from t-2). In this case, if Sargan test does not reject
> > the null, it means that X variables are not predetermined and it may
> > be considered as strictly exogenous covariates? And if the Sargan
> > rejectes the null, it means that these variables are endogenous?
> > (I've already red about the small power of Sargan test that tends to
> > overreject the null in presence of heteroskedasticity).
> > Thank You very much for your kindly reply,
> > best regards
> > 
> > Andrea Sisto
> > University of Eastern Piedmont
> > ---------- Initial Header -----------
> > 
> > >From      : owner-statalist@hsphsun2.harvard.edu
> > To          : statalist@hsphsun2.harvard.edu,"Katarina Lynch"
> > ferkel999@hotmail.com
> > Cc          : 
> > Date      : Fri, 29 Oct 2004 13:42:30 +0100 (BST)
> > Subject : Re: st: endogeneity and IV
> > 
> > > Katarina,
> > > 
> > > Quoting Katarina Lynch <ferkel999@hotmail.com>:
> > > 
> > > > Dear Statalist,
> > > > 
> > > > I am trying to inroduce instrumental variables to fix the
> > > > endogeneity
> > > > problem caused by fixed and random effects regressions. How can
> > I
> > > > determine
> > > > which independent variables are endogenous, i.e. correlated with
> > the
> > > > error
> > > > 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
> > > > reason
> > > > I am asking this, perhaps, strange question is, in STATA7, the
> > > > xtabond
> > > > command requires predetermined variables in the sense that
> > E(x,
> > > > error) is
> > > > nonzero.
> > > 
> > > 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.
> > > 
> > > --Mark
> > > 
> > > > 
> > > > Thank you,
> > > > 
> > > > Katarina
> > > > 
> > > >
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> > > 
> > > 
> > > Prof. Mark Schaffer
> > > Director, CERT
> > > Department of Economics
> > > School of Management & Languages
> > > Heriot-Watt University, Edinburgh EH14 4AS
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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
> ________________________________________________________________
> 
> DISCLAIMER:
> 
> This e-mail and any files transmitted with it are confidential
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> you are prohibited from using any of the information contained
> in this e-mail.  In such a case, please destroy all copies in
> your possession and notify the sender by reply e-mail.  Heriot
> Watt University does not accept liability or responsibility
> for changes made to this e-mail after it was sent, or for
> viruses transmitted through this e-mail.  Opinions, comments,
> conclusions and other information in this e-mail that do not
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> not endorsed by it.
> ________________________________________________________________
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> 



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