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st: Collinearity in 2SLS


From   Tinna <statalist@gmail.com>
To   statalist@hsphsun2.harvard.edu
Subject   st: Collinearity in 2SLS
Date   Thu, 15 Sep 2005 16:01:48 -0400

Dear Statalisters,

I am running 2SLS estimations. The instrument used in the first stage
is quite good according to traditional standards and tests and its
coefficient in the first stage regression is highly significant.
HOWEVER, the coefficient although significant is very small. I think
this is causing collinearity (if it can be called that in this context
- makes sense to me). The instrumented coefficient in the second stage
is blowing up big time. However, it is significant and my
Durbin-Wu-Hausman test is indicating endogeneity, so that the 2SLS
would really be what is called for.

1. Someone told me that I could still trust the sign on the
instrumented coefficient, although it is blown up.  This "someone"
says they read it "somewhere" but are not sure where.  I have reached
the end of the Internet without finding much. Can I trust the sign of
the instrumented coefficient?

2. Can I trust my Durbin-Wu-Hausman test?

3. Any suggestion for what I should do?

Tinna

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