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st: RE: Date: Tue, 22 Nov 2005 14:39:05 +0100


From   "Hoetker, Glenn" <ghoetker@uiuc.edu>
To   <statalist@hsphsun2.harvard.edu>
Subject   st: RE: Date: Tue, 22 Nov 2005 14:39:05 +0100
Date   Tue, 22 Nov 2005 09:54:06 -0600

Unfortunately, you can't instrument X*Y with X_hat*Y.  It will not
generally produce consistent estimates or valid t-statistics. Wooldridge
refers to it as the "forbidden regression."  Instead, you have to
instrument for (X*Y), which can--unfortunately--be a real pain in terms
of finding enough valid instruments. This is separate from the issue of
correcting s.e.'s after doing 2SLS "manually". 

Wooldridge [ECONOMETRIC ANALYSIS OF CROSS SECTION AND PANEL DATA, 2002,
page 236-237] is a helpful reference on this point. 

Glenn


Glenn Hoetker
Assistant professor of strategic management
University of Illinois at Urbana-Champaign
ghoetker@uiuc.edu
217/265-4081
> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu [mailto:owner-
> statalist@hsphsun2.harvard.edu] On Behalf Of Silje Aslaksen
> Sent: Tuesday, November 22, 2005 7:50 AM
> To: statalist@hsphsun2.harvard.edu
> Subject: st: Date: Tue, 22 Nov 2005 14:39:05 +0100
> 
> Hello!
> 
> I am trying to estimate the following model using instrumental
> variables.
> The final stage has two independent variables of interest, plus an
> interaction between them:
> 
> Z = aX + bY + c(X*Y) + more variables
> 
> I want to instrument variable X in a first stage regression using a
set
> of
> instruments that contain Y and some other variables that are not in
the
> final stage.  Of course the variable X*Y will have to reflect this
> instrumenting as well.
> 
> I want to instrument for X with just M (excluding MY), and
> then substitute Xhat*Y for XY in the second stage. I know that I have
to
> correct standard errors "manually".
> 
> I have done this and I have corrected standard errors "manually". My
> question is how I can perform a over-identification test (test that my
> instrument only affects Y through X) when I don`t use the ivreg
command?
> 
> Silje
> 
> Silje.aslaksen@svt.ntnu.no
> 
> 
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