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st: instruments in ivreg2

From   Kit Baum <>
Subject   st: instruments in ivreg2
Date   Sat, 21 Oct 2006 20:59:02 -0400

Bidisha said

d(mental health) = a1 + d(marital status) + d(income) + e1

You realize that the presence of the constant in this equation implies that there is a trend in mental health status? Although many of us may feel that way, I wonder if you really mean that. Same issue arises for the second equation.

As to your question -- whether you can use parents' marital status (presumably still married v. divorced or widowed) as an instrument for the change in marital status observed in your sample... Surely you will observe some changes in your sample. For parents' status to be a valid instrument, it must be correlated with the endogenous measure ( d(mar.status)) and independently distributed of the error e1. The latter is reasonable, given that parental status is predetermined; but I wonder how well correlated it will be to the included measure. Look at the first stage regression results closely.

As you have written them, both of these equations appear exactly identified, so that you cannot carry out any overid tests.

Kit Baum, Boston College Economics
An Introduction to Modern Econometrics Using Stata:

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