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From |
"Nirina F" <fstata@gmail.com> |

To |
statalist@hsphsun2.harvard.edu |

Subject |
Re: st: clarification on interpreting Stock&Yogo- maximal IV "size" |

Date |
Tue, 25 Sep 2007 10:47:59 -0400 |

That was so clear and helpful. Thank you so much Austin. Best regards, Nirina On 9/25/07, Austin Nichols <austinnichols@gmail.com> wrote: > Nirina F <fstata@gmail.com>: > The IV estimate is always biased, but is less biased than OLS to the > extent that identification is strong; in the limit of weak > instruments, there would be no improvement over OLS in terms of bias > and the bias would be 100% of OLS, and in the other limit, the bias > would be zero percent. Clearly, you'd like to know where you are on > that spectrum, even if only approximately. There is also a problem > with the size of tests after IV--you think you are rejecting a > hypothesis using a 5% alpha, but it is really 10% or 20%. Stock and > Yogo did simulations to provide "rule of thumb" critical values (or > rule of thumb "critical values" perhaps). Table 1 on page 39 of Stock > and Yogo (http://ksghome.harvard.edu/~jstock/pdf/rfa_6.pdf) shows the > value of the SY stat (a measure of the "strength of identification" or > the predictive power of the excluded instruments) to limit the bias to > 20% of OLS for two endogenous variables and three excluded instruments > (n=2, K2=5) is 5.91 (similar values are given to limit the size of > Wald tests in table 2, and stats for LIML estimates in tables 3 and > 4). > > It's not clear what you don't understand from the Stock and Yogo > paper, so it's hard to comment directly. If you gave your n and K2 > values and the SY stat from the output of -ivreg2- I suppose one could > describe directly the situation in which you find yourself. > > But the key point is that all IV and IV-type specifications suffer > from bias and size distortions, not to mention inefficiency and > sometimes failures of exclusion restrictions. The SY stat gives you > some measure of how strong your identification is in your sample, but > no information about the validity of your instruments. Hope you also > read BSS2007: > http://econpapers.repec.org/paper/bocbocoec/667.htm > and I expect -ranktest- will generate a new set of papers eventually > (-ssc install ranktest- and -help ranktest- for more). > > On 9/25/07, Nirina F <fstata@gmail.com> wrote: > > Dear all, > > > > Yes, I read > > Stock, J.H. and Yogo, M. 2005. " Testing for Weak Instruments in > > Linear IV Regression" > > > > but I still don't understand how do I interpret the critical values of > > the Stock&Yogo- maximal IV size when using ivreg2. > > > > I think I compare the critical values from x%maximal IV relative bias > > with the Cragg-Donald stat to test for weak instruments but the > > critical values for the size with what and what it means? > * > * For searches and help try: > * http://www.stata.com/support/faqs/res/findit.html > * http://www.stata.com/support/statalist/faq > * http://www.ats.ucla.edu/stat/stata/ > * * For searches and help try: * http://www.stata.com/support/faqs/res/findit.html * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/

**References**:**st: clarification on interpreting Stock&Yogo- maximal IV "size"***From:*"Nirina F" <fstata@gmail.com>

**Re: st: clarification on interpreting Stock&Yogo- maximal IV "size"***From:*"Austin Nichols" <austinnichols@gmail.com>

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