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st: New versions of -ivreg2-, -xtivreg2-, -overid-, -ivendog-, -ivhettest- and -ivreset- on SSC


From   "Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk>
To   <statalist@hsphsun2.harvard.edu>
Subject   st: New versions of -ivreg2-, -xtivreg2-, -overid-, -ivendog-, -ivhettest- and -ivreset- on SSC
Date   Mon, 7 Aug 2006 16:09:15 +0100

Thanks to Kit Baum, new versions of -ivreg2-, -xtivreg2-, -overid-,
-ivendog-, -ivhettest- and -ivreset- by Baum, Schaffer and Stillman are
now available from SSC.

The main addition is a new option to -ivreg2- and -xtivreg2-,
-fwl(varlist)-.  This requests that the exogenous regressors in varlist
are "partialled out" from all the other variables (other regressors and
excluded instruments) in the estimation.  The coefficients corresponding
to the regressors in varlist are not calculated.  By the
Frisch-Waugh-Lovell (FWL) theorem, the coefficients for the remaining
regressors are the same as those that would be obtained if the variables
were not partialled out.

The -fwl- option is useful when using -cluster- and #clusters <
(#exogenous regressors + #excluded instruments).  In these
circumstances, the covariance matrix of orthogonality conditions S is
not of full rank, and efficient GMM and overidentification tests are
infeasible since the optimal weighting matrix W = S^-1 cannot be
calculated.  The problem can be addressed by using -fwl- to partial out
enough exogenous regressors for S to have full rank.  A similar problem
arises when a robust covariance matrix is requested and the regressors
include also a variable that is a singleton dummy, i.e., a variable with
one 1 and N-1 zeros or vice versa.  The singleton dummy causes the
robust covariance matrix estimator to be less than full rank.  In this
case, partialling-out the variable with the singleton dummy solves the
problem.  The -fwl- option can also be used for the more mundane purpose
of supressing the output of uninteresting covariates.

IMPORTANT: Because the -fwl- option uses a data transformation, the
postestimation commands that run after -ivreg2- and -xtivreg2-, namely
-overid-, -ivendog-, -ivhettest- and -ivreset-, must also be updated.
If they are not, they will generate invalid test statistics following an
estimation with -fwl-

--Mark

Prof. Mark E. Schaffer 
Director 
Centre for Economic Reform and Transformation 
Department of Economics 
School of Management & Languages 
Heriot-Watt University 
Edinburgh EH14 4AS  UK 
44-131-451-3494 direct 
44-131-451-3296 fax 
http://www.sml.hw.ac.uk/cert 


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