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Re: st: 2SLS and Instrumental Variables


From   "Mark Schaffer" <[email protected]>
To   [email protected]
Subject   Re: st: 2SLS and Instrumental Variables
Date   Fri, 10 Dec 2004 11:17:42 -0000

Dana,

From:           	"Dana Shills" <[email protected]>
To:             	[email protected]
Subject:        	st: 2SLS and Instrumental Variables
Date sent:      	Fri, 10 Dec 2004 05:20:50 +0000
Send reply to:  	[email protected]

> Sorry my last email was incomplete...
> Consider the following:
> 
> regress Y2 Z1 Z2 Z3 Z4 X1 X2
> *****Z1-Z4 are all significant at the 1% level.
> predict y2hat
> predict res1, resid
> 
> 
> regress Y1 y2hat X1 X2 res1
> ****Both y2hat and res1 come out significant at the 1% level. So y2 is
> indeed endogenous. However when I do
> 
> regress Y1 Z1 Z2 Z3 Z4 X1 X2 res1
> then only Z1 is weakly significant and the rest are not. Why is this
> the case? When the predicted value of y2 which is a function of Z1-Z4
> comes out significant then why not Z1-Z4 themselves?

Perhaps because of the loss of degrees of freedom and/or 
multicollinearity between the Zs?  Try a test of the joint 
significance of Z1-Z4.

--Mark

> 
> Thanks for taking the time to consider this question.
> 
> Regards
> -Dana
> 
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Prof. Mark E. Schaffer
Director
Centre for Economic Reform and Transformation
Department of Economics
School of Management & Languages
Heriot-Watt University, Edinburgh EH14 4AS  UK
44-131-451-3494 direct
44-131-451-3296 fax
44-131-451-3485 CERT administrator
http://www.sml.hw.ac.uk/cert

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