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st: RE: Help needed in interpreting the C-statistics in -ivreg2, orthog-


From   "Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk>
To   <statalist@hsphsun2.harvard.edu>
Subject   st: RE: Help needed in interpreting the C-statistics in -ivreg2, orthog-
Date   Wed, 28 Jun 2006 10:24:28 +0100

Bo,

> -----Original Message-----
> From: Bo MacInnis [mailto:bo@macinnis.org] 
> Sent: Wednesday, June 28, 2006 2:07 AM
> To: Schaffer, Mark E; statalist@hsphsun2.harvard.edu
> Subject: RE: Help needed in interpreting the C-statistics in 
> -ivreg2, orthog-
> 
> Mark,
> 
> Thank you very much. You are right to point out the 
> discrepancy between the model I referred to and the test 
> statistics I cited. The model that corresponded to is:
> 
> ivreg2 y x2 (x1 = z1 z2 z3 z4 z5 z6) X, orthog(x2)
> 
> So, x2 "should" be modelled as "exogenous"?

Yes, though you should also do the other standard specification tests.
In particular, you should probably check that both the equation above
and the implicit 2nd equation that is the comparator (where x2 is
exogenous) are both adequately identified as indicated by the
first-stage stats etc.

Cheers,
Mark

> 
> Thank you!
> Bo
> 
> At 05:53 PM 6/27/2006, Schaffer, Mark E wrote:
> >Bo,
> >
> > > -----Original Message-----
> > > From: Bo MacInnis [mailto:bo@macinnis.org]
> > > Sent: 28 June 2006 01:39
> > > To: statalist@hsphsun2.harvard.edu
> > > Subject: Help needed in interpreting the C-statistics in -ivreg2, 
> > > orthog-
> > >
> > > Dear StataListers,
> > >
> > > I'd really appreciate if you would help me on a really simple 
> > > question about the -orthog- option in the -ivreg2- command.
> > >
> > > Suppose:
> > >
> > > ivreg y (x1 x2 = z1 z2) X
> > >
> > > Now I want to test whether x2 is endogenous. So I use:
> > >
> > > ivreg2 y x2 (x1 = z1 z2) X, orthog(x2)
> > >
> > > I get the following statitics:
> > >
> > > -orthog- option:
> > > Hansen J statistic (eqn. excluding suspect orthog.
> > > conditions):          4.559
> > >                                                     Chi-sq(4)
> > > P-val =    0.3356
> > > C statistic (exogeneity/orthogonality of suspect
> > > instruments):           1.865
> > >                                                     Chi-sq(1)
> > > P-val =    0.1720
> > >
> > > Question: Does it mean I fail to reject the null where 
> the null is 
> > > that x2 is endogenous?
> >
> >That's right.  The first Hansen J stat is a test that the 4 
> >overidentifying restrictions are jointly valid.  The second 
> J stat is a 
> >test that the one specified orthogonality condition is 
> valid, i.e., the 
> >variable is exogenous.
> >
> >In your case, you find that the 4 overid restrictions are valid (so 
> >that you don't reject the null that they're invalid, i.e., 
> they're OK), 
> >and that the one specified orthogonality condition is valid (so that 
> >you don't reject the null that that it's exogneous/valid).
> >
> >BTW, I assume the results you are reporting are not for the example 
> >above, since in the model estimated by
> >
> >ivreg2 y x2 (x1 = z1 z2) X, orthog(x2)
> >
> >there is only one overidentifying restriction, and so you don't have 
> >enough degrees of freedom to test the exogeneity of just x2 (roughly 
> >speaking, the C stat would have zero degrees of freedom).
> >
> >Cheers,
> >Mark
> >
> >Prof. Mark Schaffer
> >Director, CERT
> >Department of Economics
> >School of Management & Languages
> >Heriot-Watt University, Edinburgh EH14 4AS tel 
> +44-131-451-3494 / fax 
> >+44-131-451-3296
> >email: m.e.schaffer@hw.ac.uk
> >web: http://www.sml.hw.ac.uk/ecomes
> >
> > > Thank you so much,
> > > Bo MacInnis
> > >
> > >
> > >
> 
> 
> 

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