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st: Re: how to obtain residuals from first stage ivreg


From   Kit Baum <baum@bc.edu>
To   statalist@hsphsun2.harvard.edu
Subject   st: Re: how to obtain residuals from first stage ivreg
Date   Fri, 4 Nov 2005 08:11:31 -0500

First of all, as often mentioned on the list, it is wrongheaded to think "I use z1 to instrument x1 and z2 to instrument x2". That's not how instrumental variables works. All instruments, included and excluded, are used to generate predicted values of all included endogenous variables.

You don't have a model in which it will be easy to test for endogeneity since it is exactly identified via the order condition. If there are other available instruments, by all means include them. Then use ivreg2 (ssc desc ivreg2) and employ the orthog option. For more details see the Baum-Schaffer-Stillman paper on IV and GMM, SJ 3:1, available in preprint form from the URL below.

Kit Baum, Boston College Economics
http://ideas.repec.org/e/pba1.html


On Nov 4, 2005, at 2:33 AM, statalist-digest wrote:



I would really appreciate if you would help me on the following problem. I
have the following equation:

ivreg y (x1 x2 = z1 z2) X

that is, I use z1 to instrument x1 and z2 to instrument x2.

Now I want to test the endogeneity of x2. I am not worried about x1 at this
point.
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