st: ivreg2+first stage

[Marcello Pagano <pagano@hsph.harvard.edu>]

> > From: Kit Baum <baum@bc.edu>
> > Date: May 10, 2007 8:24:25 PM EDT
> > To: statalist@hsphsun2.harvard.edu
> > Subject: ivreg2+first stage
> >
> > sacrificial camel
> >
> > Andrea said
> >
> > I want to find the answer to a simple question.
> > Consider a panel data such as
> >
> > y(it) = a + a1*x1(it) + a2*x2(it) + a(i) + u(it)
> >
> > where x2 is predetermined or endogenous. I found a potential  set of 
> > endogenous variable Z(it) to use as instrument. I know that applying 
> > ivreg to such equation provides consitent estimates of a, a1, a2 and 
> > u(it) [suppose all variable has been differenced to remove unobserved 
> > heterogeneity).
> >
> > However, i'm also interested in estimating
> >
> > x2(it) = b + b1*x1(it) + b2*Z(it) + a(i) + e(it),
> >
> > the first stage of the iv regression. Is such an estimate consitently 
> > estimated by ivreg2, first?
> >
> >
> >
> > Of course. If x1 and Z are appropriately uncorrelated with the e 
> > process, the FSRs of IV are consistent estimates. If diagnostics on 
> > the IV estimates indicate that you have not satisfied the 
> > orthogonality conditions (e.g. the Sargan-Hansen test), then you 
> > should question whether the FSRs are appropriately estimated by OLS.
> >
> > Kit
> >
> > Kit Baum, Boston College Economics and DIW Berlin
> > 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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