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st: Re: why did IV estimation turn an insignificant included instrument variable in OLS to be significant in IV estimation?


From   "Rodrigo A. Alfaro" <ralfaro76@hotmail.com>
To   <statalist@hsphsun2.harvard.edu>
Subject   st: Re: why did IV estimation turn an insignificant included instrument variable in OLS to be significant in IV estimation?
Date   Wed, 23 Aug 2006 01:31:30 -0400

Jian,

Pretend that your model is:

y2 = b*y1 + c*x + e

if you estimate by LS then std error for b and c
depend on the fit as well the std errors of y1 and x
(you can check Marteen's question around 08/15)

LS+robust you add some of the structure of e,
which makes the things more complex.

Alternative you can say that y1 is also endogenous
therefore a IV estimator will be more appropiated
you are adding some additional equation like

y1 = d1*z1 + d2*z2 + d3*z3 + w

Assuming that z's are valid instruments and taking
whatever method of IV (2SLS, GMM, Nagar, LIML,
Fuller, etc) your news std errors for b and c depend
on several statistics and the std erros of z's and x.




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