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RE: st: RE: a question about option orthog for command ivreg2


From   "Jian Zhang" <jzh@ucdavis.edu>
To   "Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk>, statalist@hsphsun2.harvard.edu
Subject   RE: st: RE: a question about option orthog for command ivreg2
Date   Sat, 19 Aug 2006 20:15:56 -0700 (PDT)

Thanks, Mark!  But when I run ivreg2 (using the updated version), the results reported that (right 
after the first stage regression results):

Error: estimated covariance matrix of moment conditions not of full rank;
       overidentification statistic not reported, and standard errors and
       model tests should be interpreted with caution
Possible causes:
       singleton dummy variable (dummy with one 1 and N-1 0s or vice versa)
-fwl- option may address problem.  See help ivreg2.

It stated "overidentification statistics nor reported".  However at the end of the second stage 
regression, it showed IN FACT the value of the Hansen J statistic (overidentification test of all 
instruments).  Why did STATA report overidentification statistics after it already stated 
"overidentification statistics nor reported"?  This seems inconsistent. 

Also if estimated covariance matrix of moment conditions is not of full rank, will we not be able 
to obtain estimates of GMM?  It seems to me that if this matrix is not of full rank, this means that 
we could not get the weighted matrix (since the weighted matrix is the inverse of estimated 
covariance matrix of moment conditions).  Is this right?
  
In addition, I have been trying the examples provided at the end of the documentation
for ivreg2 using the Griliches data.  It seems that there is a problem on the consistencies of the 
results from different overidentifiying restriction testings.

First I run regression:

 ivreg2 lw s expr tenure rns smsa _I* (iq=med kww age mrt), gmm orthog(age mrt)

The Hansen J statistic indicated that instruments med kww age and mrt are not  valid (i.e., 
correlated with the error term).  The C statatistic indicated that the subset of instruments age 
and mrt are not valid.  However, when I run the following regression:

ivreg2 lw s expr tenure rns smsa _I* (iq=age mrt), gmm 

the Hansen J statistic indicated that instruments age and mrt are valid.  It seems that two sets of 
regressions gave inconsistent results on the validity of instruments age and mrt.  Why does this 
happen?  Which result should we trust?   I found your emaill response to someone else in 2004 in 
the statalist but could not really find an answer to this from your email response.  Many thanks!

Best regards,
Jian Zhang







> Jian Zhang,
> 
> > -----Original Message-----
> > From: owner-statalist@hsphsun2.harvard.edu 
> > [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Jian Zhang
> > Sent: 18 August 2006 21:23
> > To: statalist@hsphsun2.harvard.edu
> > Subject: st: a question about option orthog for command ivreg2 
> > 
> > Dear Statalisters,
> > 
> > I am using ivreg2 command to implement GMM estimation on a 
> > panel data set.  I specified option orthog( ) to examine if a 
> > subset of my instruments are really exogenous (by putting the 
> > list of the subset of instruments in the parentheses of 
> > orthog).  However, the results reported by STATA say
> > that: 
> > 
> > Collinearity/identification problems in restricted equation:
> >   C statistic not calculated for orthog option
> 
> First, you should check that you are using the latest version of
> -ivreg2-; I think the wording of this error message is from an earlier
> version.  The problem with the wording is that when the subset of
> instruments is tested, the equation is, if anything, better described as
> UNrestricted - because the variables listed are no longer "restricted"
> to being assumed exogenous.
> 
> Anyway... after you update, you can find out what is going on by
> estimating the 2nd equation by hand.  Put the instruments listed in
> orthog() in either the list of endogenous regressors (if they were
> exogenous regressors in the original eqn), or omit them entirely (if
> they were excluded instruments in the original eqn).  FWIW, my guess is
> that the 2nd equation is either exactly identified or unidentified.
> 
> 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
>  
> > Is there anyone knowing what is going on?  Since STATA has 
> > reported the estimates of the restricted equation(i.e., the 
> > regression using the entire set of instruments 
> > (overidentifying restrictions)), why did STATA still state 
> > "collinearity/idenfification problems in restricted 
> > equation"?  Many thanks!
> > 
> > Best regards,
> > Jian Zhang
> > 
> > 
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