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st: RE: RE: RE: RE: Re: several endogenous dummies


From   "Schaffer, Mark E" <[email protected]>
To   <[email protected]>
Subject   st: RE: RE: RE: RE: Re: several endogenous dummies
Date   Fri, 1 Sep 2006 16:15:35 +0100

Marijke,

> -----Original Message-----
> From: [email protected] 
> [mailto:[email protected]] On Behalf Of 
> Verpoorten, Marijke
> Sent: Friday, September 01, 2006 3:45 PM
> To: [email protected]
> Subject: st: RE: RE: RE: Re: several endogenous dummies
> 
> Dear Mark,
> 
> Thank you for pointing out the 3SLS, I wasn't aware of this procedure.
> 
> Wrt the second issue, there is a misunderstanding. I'm not 
> omitting any endogenous variable from the equation. I do not estimate 
> 
> ivreg2 y x1 (x2=z1)
> ivreg2 y x1 (x3=z1)
> 
> Instead, I estimate
> 
> Condivreg y x1 x2 (x3=z1 z2), ar lm
> Condivreg y x1 x3 (x2=z1 z3), ar lm
> 
> with the set of instruments (z1 z2) and (z1 z3) a relevant 
> subset of the full set of instruments (z1 z2 z3). I do so, 
> because I have weak instruments and condivreg only allows for 
> instrumenting one endogenous variable. 
> 
> Are these equations also misspecified?

Yes.  It all comes down to the same problem.  In the full specification,

ivreg2 y x1 (x2 x3=z1 z2)

but you have a weak instrument problem.  You are suggesting that you
deal with this by reducing the number of endogenous variables.  You can
try

ivreg2 y x1 (x3=z1 z2)    [my suggestion]

or

ivreg2 y x1 x2 (x3=z1 z2)   [your suggestion]

but neither is well specified.  In my case, you have an endogeneity
problem via omitted variable bias; in yours, via the endogeneity of x2.
There's no direct escape, I'm afraid.

Cheers,
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


> 
> Marijke
> 
> 
> -----Original Message-----
> From: [email protected]
> [mailto:[email protected]] On Behalf Of 
> Schaffer, Mark E
> Sent: vrijdag 1 september 2006 16:30
> To: [email protected]
> Subject: st: RE: RE: Re: several endogenous dummies
> 
> Marijke,
> 
> Two reactions to your post:
> 
> > -----Original Message-----
> > From: [email protected]
> > [mailto:[email protected]] On Behalf Of 
> Verpoorten, 
> > Marijke
> > Sent: Friday, September 01, 2006 1:28 PM
> > To: [email protected]
> > Subject: st: RE: Re: several endogenous dummies
> > 
> > Hi Rodrigo,
> > 
> > Thanks a lot for your answer. I'm sorry for my late reply; I was 
> > traveling.
> > 
> > To answer to your first three questions: (1)I have a set of
> > 17 instruments among which several cross-products and 
> squares of the 
> > exogenous RHS variables, (2) I use the same set of instruments for 
> > each of the variables, though for some variables some 
> instruments are 
> > not relevant. I did not find a way to use different subsets of 
> > instruments in the ivreg2 procedure,
> 
> This is a misunderstanding about single-equation IV that 
> comes up from time to time on Statalist.  In single-equation 
> IV, there is no way to limit sets instruments to apply to 
> particular sets of endogenous regressors.  This is basically 
> by definition - you can do this, but then you are in the land 
> of system estimation, 3SLS, FIML and the like.  For example, in
> 
> ivreg2 y x1 (x2 x3 = z1 z2 z3 z4)
> 
> you might think that z1 and z2 instrument for x2, and z3 and 
> z4 instrument for x3.  But that is another way of saying that 
> you want to specify 3 equations - y, x2, and x3 - and get 
> efficiency gains from system estimation.  No problem - use 
> reg3 or whatever - but then it's not single-equation IV.
> 
> > (3) I need to instrument five dummies and two count 
> variables. These 
> > variables give information on whether or not a household 
> was hit by a 
> > particular war-related shock, such as the death/illness of 
> a household 
> > member, imprisonment of a member, months taken refuge abroad etc. I 
> > want to analyze which type of shock has a long term effect on the 
> > household's welfare.
> > 
> > Household welfare in 2002 = f(household welfare in 1990, household 
> > characteristics in 1990, shocks occurring between 1990-2002)
> > 
> > When I use the usual ivreg2 procedure to solve for the possible 
> > endogeneity of the war-related shocks, I face the weak instrument 
> > problem. Therefore I also use the condivreg procedure, for 
> each shock 
> > separately, while using the most relevant set of 
> instruments for each 
> > shock (those significant at 10% in the first stage of ivreg2). 
> > However, I don't know whether it makes sense to instrument for each 
> > shock separately.
> 
> This is probably not legitimate, at least as you describe it. 
>  The problem is that you can't identify an equation in this 
> kind of piece-by-piece manner.  It's like the following 
> example.  You want to estimate
> 
> ivreg2 y x1 (x2 x3=z1)
> 
> but it's not identified because you don't have enough 
> excluded instruments.  You can't solve the problem by 
> estimating the following two equations:
> 
> ivreg2 y x1 (x2=z1)
> 
> ivreg2 y x1 (x3=z1)
> 
> The two equations are identified but misspecified, because in 
> each case,
> z1 will be correlated with the error term via the omitted 
> endogenous variable.  You will have the same problem if you 
> instrument for each of your endogeous regressors separately.
> 
> HTH.
> 
> --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
> 
> 
> > I'm not sure I understand your suggestion about using the mlogit or 
> > mprobit procedure. Is this to be used in the first stage? Is it 
> > possible when the dummies may overlap, i.e. a household may face 
> > several shocks.
> > How may the first stage information be used in the second stage? As 
> > predicted probabilities?
> > 
> > I also have to admit that I don't know what you mean with a full 
> > characterization of the problem using ml. Could you put me on the 
> > right track with a reference to a stata code, a textbook or an 
> > article?
> > 
> > Thank you very much,
> > 
> > Marijke
> > 
> > 
> > 
> > 
> > 
> > -----Original Message-----
> > From: [email protected]
> > [mailto:[email protected]] On Behalf Of 
> Rodrigo A.
> > Alfaro
> > Sent: zaterdag 26 augustus 2006 6:22
> > To: [email protected]
> > Subject: st: Re: several endogenous dummies
> > 
> > Marijke,
> > 
> > I don't know the answer for your question but I can give you some 
> > questions that you can explore. Note that the reference 
> that you wrote 
> > describes 1
> > 
> > dummy variable, which sounds reasonable to do it by that procedure 
> > instead of linear IV. Moreover, Wooldridge said that the 
> estimation of 
> > the parameters and the specification of the model in the 
> first stage 
> > do not affect the standard errors of 2SLS. Great!!!
> > 
> > How many instruments are you going to use for these dummies? 
> > Same set for each one? What number several means? Why not 
> combine the 
> > choices into a multinominal problem (solving by mlogit or mprobit)? 
> > After you feel confortable with your entire model, 
> equations for the 
> > dummies plus your 2SLS one I think that it is not longer valid the 
> > non-effect on std errors when you are trying to solve for several 
> > endogenous dummies.
> > 
> > Maybe a full characterization of the problem is the way to 
> go. You can 
> > describe all the process (endogenous dummies plus your continuous
> > variable)
> > as a maximum likelihood framework. You will pay with additional 
> > assumption above the model but the reward will be a complete system 
> > with "no-better"
> > standard errors.
> > 
> > Rodrigo.
> > 
> > 
> > 
> > ----- Original Message -----
> > From: "Verpoorten, Marijke" <[email protected]>
> > To: <[email protected]>; 
> > <[email protected]>; <[email protected]>
> > Sent: Friday, August 25, 2006 3:38 PM
> > Subject: st: several endogenous dummies
> > 
> > 
> > Dear statlisters,
> > 
> > I wonder whether, when having a continuous variable as a dependent 
> > variable and several endogenous dummies, it`s better to use 
> the usual 
> > 2SLS (ivreg2), instead of instrumenting the dummies 
> non-linearly (as 
> > in Wooldridge, 2002, p623-625). Could you help me with this 
> question?
> > 
> > Kind regards,
> > Marijke
> > 
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