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st: xtivreg2 and year dummies

From   Robert <>
Subject   st: xtivreg2 and year dummies
Date   Wed, 28 Nov 2007 13:02:26 -0500

Dear all,

I need some help (again...) to solve an applied econometrics problem. 
In short: Starting from an unbalanced panel database (10 years, many 
variables), I made my xtivreg2, as the following:

* xtivreg2 h x (d=z), fe i(id) cl(id)

I was later suggested to add year dummies in my IV regression. I tried 
this way:

- befofe making the xtivreg2..., I added the following strings:

* tabulate year, generate(dyear)
* global xextra dyear1 dyear2 dyear3 dyear3 dyear4 dyear5 dyear6 dyear7 
dyear8 dyear9 dyear10

and then I re-estimated this regression:

* xtivreg2 h x $xextra (d=z), fe i(id) cl(id)

The results are not that good, in particular almost all "dyear" dummies 
in the h (second stage) equation are visibly not significant, while 
they are in the first stage. Besides, the Sargan-Hansen is lower now!

My questions:

1) Is it empirically correct the way I added the dummies in the xtvreg2?

2) Regardless of my specific interests, is it useful to add 
year-dummies as exogenous in both equations ($xextra belong to both 
first and second stage equation)?

3) Since some year dummies seem to be significant in the d (first 
stage) equation (while not in h regression), can I include them in 
this, as if they were z-like instruments?

4) Is there a test of joint significance for these dummies (I tried 
"test  dyear2 dyear1 dyear3 dyear4 dyear5 dyear6 dyear7 dyear8 dyear9 
dyear10", but I were wrong...) to justify their inclusion?

I really hope your kind help.

Thank you in advance for all.

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