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Re: st: RE: instruments in ivreg2


From   Bidisha Mandal <mandal.7@osu.edu>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: RE: instruments in ivreg2
Date   Tue, 24 Oct 2006 20:36:02 -0400

Mark,

Thank you for the references.

Bidisha Mandal

Dept. of AED Economics
The Ohio State University


Schaffer, Mark E wrote:

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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