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st: RE: instruments in ivreg2


From   "Steven Stillman" <steven@thestillmans.org>
To   <statalist@hsphsun2.harvard.edu>
Subject   st: RE: instruments in ivreg2
Date   Sat, 21 Oct 2006 15:34:37 +1300

Bidisha,

I think you are confusing the tests available in ivreg2.  The 'endog' option
test whether one or more of your included RHS variables are exogenous given
that you have a valid excluded instrument.  So, you seem to be indicating
that you are using state employment rates an excluded instrument with labour
market status as your suspect endogenous variable and that you are then
finding that labour market status is, in fact, endogenous.

It is not possible to test whether state employment rates are a valid
instrument unless you have more than one potentially valid instruments, in
which case you can then run an overidentification test of the joint validity
of the excluded instruments.

This is all explained in great detail in Christopher F Baum & Mark E.
Schaffer & Steven Stillman, 2003. "Instrumental variables and GMM:
Estimation and testing," Stata Journal, StataCorp LP, vol. 3(1), pages 1-31,
March which is also available as Boston College Working Papers in Economics
545.

Cheers,
Steve

-----Original Message-----
From: owner-statalist@hsphsun2.harvard.edu
[mailto:owner-statalist@hsphsun2.harvard.edu]On Behalf Of Bidisha Mandal
Sent: Wednesday, October 18, 2006 6:13 AM
To: statalist@hsphsun2.harvard.edu
Subject: st: instruments in ivreg2


Hi,

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?

Thanks,

--
Bidisha Mandal

Dept. of AED Economics
The Ohio State University

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