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st: instruments in ivreg2
I am working with panel data, and using ivreg2 for estimation purposes.
My dependent variable is a measure of individual's mental health status.
One of the independent variables is individual's labor market status,
which could be endogenous. Using the 'endog' option I tested that it is
in fact endogenous. I used state unemployment rate as a proxy, due to
high correlation between this and individual's labor market status. But
the J-statistic turns out to be significant. Seems unrealistic, how can
my mental health affect state unemployment rate? Is this result because
the test JOINTLY tests instruments are uncorrelated with the error AND
correctly excluded from the estimated equation? Is there anyway to JUST
test whether the instrument is appropriate?
Dept. of AED Economics
The Ohio State University
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