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st: Re: 2SLS with probit in the first stage

From   Kit Baum <>
Subject   st: Re: 2SLS with probit in the first stage
Date   Thu, 21 Feb 2008 06:53:30 -0500

(1) Try the estimation using xtivreg2. If you have anywhere near 2000 variables in the dataset, -preserve- and drop some of those that are not in the equation to be estimated.

(2) "Hausman test easily rejects the fixed effects GLS." A Hausman test rejects when the "efficient" estimator is found to be inconsistent. In the RE/FE setup, RE is "efficient" under the null that X \perp u and inconsistent otherwise. If the Hausman test is rejecting anything, it is rejecting that the random effects estimator is consistent.

It is not surprising that you could reject reject pooled OLS, which ignores unit-level heterogeneity, in favor of a FE model which incorporates it. But whether you can assert that X \perp u in that model is another issue.


Kit Baum, Boston College Economics and DIW Berlin
An Introduction to Modern Econometrics Using Stata:

On Feb 21, 2008, at 02:33 , statalist-digest wrote:

Thank you. As I mentioned I used -xtreg- for the
original equation as I believed that random-effects
GLS is a less biased estimator than OLS, since the
data are grouped across workplaces (Moulton, 1987). A
Hausman test easily rejects the fixed effects GLS.

I tried to perform the Hausman test by estimating the
model with -xtivreg- using re. But this is what I got:

 . xtivreg pay  yrsed  (b4a2 = dhat) mnedwk2 e1a1
p1a2-p1a5 v2a1-v2a5 v14a1 dis2 h2a2 h2a3 h4a2 h3a1
h3a3 h3a4 f1a1 z2-z6  ratiopk2 n1-n4 n6-n12
fnonmana1-fn6  fno1-fno6 ratiofk2 aga1  k2-k4 in1 c1,

no room to add more variables
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