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st: RE: -endog- test under ivreg2


From   <J.Fischer@lse.ac.uk>
To   <statalist@hsphsun2.harvard.edu>
Subject   st: RE: -endog- test under ivreg2
Date   Wed, 24 May 2006 22:20:13 +0100

Hi

I am not an expert on instruments, but I suggest you
1) first select appropriate instruments using the Sargan J statistics
and the F-stat on excl. instruments in the 1st stage regression (use
ffirst option)
2) then test endogeneity ( Hausman Wu etc)

Justina 

-----Original Message-----
From: owner-statalist@hsphsun2.harvard.edu
[mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Susie Enders
Sent: 24 May 2006 20:30
To: statalist@hsphsun2.harvard.edu
Subject: st: -endog- test under ivreg2

Hello,

I have a quarterly panel dataset on which I am running a dynamic fixed
effects model using the ivreg,gmm option (I have also tried using
xtivreg2). I am not sure whether or not some of my regressors are
endogenous and require instrumentalisation. I am trying to test this
using the endog option. My confusion is that the outcome from the endog
test depends on what instrument one uses for the suspect variable. With
some instruments the suspect variable appears endogenous, with others
not. However, not even being sure which is an appropriate instument, how
do I establish whether or not the suspect variable is endogenous in the
first place and hence even needing to be instrumentalised?

(I have already read the help files as well as the
Baum-Schaffer-Stillman paper and tried searching on the list archives).

I have pasted below my specification and the relevant portion of the
output for 3 regressions, the only difference being the instrument used
to instrument the suspect variable (d) which I am testing whether or not
it is endogenous. If I read the output correctly, in regression 1 (in
which the instrument is the same variable lagged 4 periods back) it
seems that we reject Ho that the suspect variable (d) is exogenous, ie
it does need to be instrumentalised. Regression 2 (in which the
instrument is the one-lagged variable) doesnt even give an output on
endog. According to regression 3 (in which the instrument is another
variable, e) it seems we fail to reject Ho so the suspect variable (d)
is exogenous. How do I know whether or not it actually is endogenous
without
knowing which is the "right" intrument?   

A follow-up question would then be, if the suspect variable is indeed
endogenous and needs to be instrumented, how I decide which instrument
is best?

Regression 1:
ivreg2 ROA l.ROA a b c (d=l4.d), gmm endog(d) robust
cl(key)

Hansen J statistic (overidentification test of all
instruments):         0.000
                                                
(equation exactly identified)
-endog- option:
Endogeneity test of endogenous regressors:            
                  9.550
                                                  
Chi-sq(1) P-val =    0.0020
Regressors tested:    d
------------------------------------------------------------------------
------
Instrumented:         d
Included instruments: L.ROA a b c
Excluded instruments: l4.d
---------------------------------
===============
Regression 2:
ivreg2 ROA l.ROA a b c (d=l.d), gmm endog(d) robust
cl(key)

Hansen J statistic (overidentification test of all
instruments):         0.000
                                                
(equation exactly identified)

Collinearity/identification problems in eqn. excl.
suspect orthog. conditions:
  C statistic not calculated for -orthog- option
------------------------------------------------------------------------
------
Instrumented:         d
Included instruments: L.ROA a b c
Excluded instruments: l.d

==========================================

Regression 3:

ivreg2 ROA l.ROA a b c (d=e), gmm endog(d) robust
cl(key)

Hansen J statistic (overidentification test of all
instruments):         0.000
                                                
(equation exactly identified)
-endog- option:
Endogeneity test of endogenous regressors:            
                  0.925
                                                  
Chi-sq(1) P-val =    0.3362
Regressors tested:    d
------------------------------------------------------------------------
------
Instrumented:         d
Included instruments: L.ROA a b c
Excluded instruments: e
---------------------------------

Thanks so much for any help with this I am so frustrated!

Debbie





		
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