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RE: st: RE: instruments in ivreg2


From   "Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk>
To   <statalist@hsphsun2.harvard.edu>
Subject   RE: st: RE: instruments in ivreg2
Date   Mon, 23 Oct 2006 18:29:07 +0100

Bidisha, 

> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu 
> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of 
> Bidisha Mandal
> Sent: 23 October 2006 18:04
> To: statalist@hsphsun2.harvard.edu
> Subject: Re: st: RE: instruments in ivreg2
> 
> Kit and Steve,
> 
> Thank you. I think I have finally figured out the appropriate 
> instruments. I have 2 endogenous regressors, and managed 4 
> excluded instruments. The overidentification test gives a 
> p-value of 0.15.
> I do have another question though. Change in Marital status 
> (the endogenous regressor) is categorical. So I am doing the 
> 2SLS by brute force, using logistic regression in the first 
> stage. Obviously correcting for the standard errors is 
> slightly more complicated. Any suggestion?

This comes up a lot on Statalist.  Have a look at, e.g.,

http://www.stata.com/statalist/archive/2004-09/msg00339.html
http://www.stata.com/statalist/archive/2006-10/msg00316.html
http://www.stata.com/statalist/archive/2006-10/msg00275.html
http://www.stata.com/statalist/archive/2004-08/msg00662.html

and quite a few others over the years.

Cheers,
Mark

Prof. Mark Schaffer
Director, CERT
Department of Economics
School of Management & Languages
Heriot-Watt University, Edinburgh EH14 4AS
tel +44-131-451-3494 / fax +44-131-451-3296
email: m.e.schaffer@hw.ac.uk
web: http://www.sml.hw.ac.uk/ecomes

> 
> Thanks again,
> 
> Bidisha Mandal
> 
> Dept. of AED Economics
> The Ohio State University  
> 
> 
> 
> Steven Stillman wrote:
> > Hi Bidisha.
> >
> > As Kit points out, it is fine to use a time-invariant 
> variable as an 
> > excluded instrument for a time-variant endogenous variable, but you 
> > are quite likely to end up with a weak instrument problem.
> >
> > Depending on your data, you might be able to create slightly more 
> > informative time-variant instruments such as the number of 
> cumulative 
> > years of each parent's current marriage or number of years 
> since being 
> > married if not-married, cumulative number of marriages for each 
> > parent, average length of each parents marriages, etc.  If 
> your data 
> > allows you to create more than one instrument of this flavour, you 
> > could then run an overidentification test.  You would still need to 
> > carefully test that none of these instruments was weak.
> >
> > Cheers,
> > Steve
> >
> > -----Original Message-----
> > From: owner-statalist@hsphsun2.harvard.edu
> > [mailto:owner-statalist@hsphsun2.harvard.edu]On Behalf Of Kit Baum
> > Sent: Sunday, October 22, 2006 1:59 PM
> > To: statalist@hsphsun2.harvard.edu
> > Subject: st: instruments in ivreg2
> >
> >
> > 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
> > http://ideas.repec.org/e/pba1.html
> > An Introduction to Modern Econometrics Using Stata:
> > http://www.stata-press.com/books/imeus.html
> >
> >
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