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RE: st: conditional likelihood ratio test when the cluster option is used in ivreg (weak instrument).


From   "Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk>
To   <statalist@hsphsun2.harvard.edu>
Subject   RE: st: conditional likelihood ratio test when the cluster option is used in ivreg (weak instrument).
Date   Thu, 28 Feb 2008 18:54:44 -0000

Danny,

> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu 
> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of 
> Danny Cohen-Zada
> Sent: Thursday, February 28, 2008 4:54 PM
> To: statalist@hsphsun2.harvard.edu
> Subject: Re: st: conditional likelihood ratio test when the 
> cluster option is used in ivreg (weak instrument).
> 
> Professor Austin,
> 
> Your advise helped me very much. I performed the AR test with 
> the cluster option and obtained very good result. I only want 
> to be sure that I did everything ok.
> 
> Our basic model was
> 
> ivreg2 y1 x1 x2 (y2 =  z1 ), ffirst robust cluster (x3) (by 
> the way the clustered t -statistic in this estimation was -2.08)
> 
> Since my instrument was potentially weak I wanted a correct 
> p-value (or t -statistic) for the test that the coefficient 
> of y2 is different from zero (in this case y1-y2b0 =y1).
> 
> Thus, i regress the following regression:
> 
> regress y1 z1 x1 x2, robust cluster (x3)
> 
> the t-statisic for the coefficient of z1 is the correct 
> t-statistic for the test  that the coefficient of y2 is equal 
> to zero (am i correct?).

This test is in the ivreg2 ffirst output, so you needn't do it by hand
(except to double check).  Also see the discussion in
Baum-Schaffer-Stillman, The Stata Journal, Vol. 7, No. 4, 2007.

Cheers,
Mark

Prof. Mark E. Schaffer
Director
Centre for Economic Reform and Transformation
Department of Economics
School of Management & Languages
Heriot-Watt University
Edinburgh EH14 4AS  UK
44-131-451-3494 direct
44-131-451-3296 fax
http://www.sml.hw.ac.uk/cert

> 
> I obtained even stronger results. The t-statistic is -2.43.
> 
> Am i  correct that now i can claim that y2 as a significnat 
> negative effect on y1 based on the -2.43.
> 
> Thanks,
> 
> Danny
> 
> 
> ----- Original Message -----
> From: "Austin Nichols" <austinnichols@gmail.com>
> To: <statalist@hsphsun2.harvard.edu>
> Sent: Thursday, February 28, 2008 4:00 PM
> Subject: Re: st: conditional likelihood ratio test when the 
> cluster option is used in ivreg (weak instrument).
> 
> 
> > Danny--
> > The answer is no, you cannot "trust this result" from a 
> command that 
> > does not allow cluster-robust estimation when you must use 
> clustered 
> > standard errors in the IV (ivreg2) estimation.  If clustering is 
> > important, and you have said that it is, and you have a weak 
> > instruments problem, you must either improve the quality of your 
> > instruments by adding/finding more excluded instruments, in 
> which case 
> > you probably want the LIML/CUE options on -ivreg2- (and 
> overID tests), 
> > or you can use a method of inference robust to the presence of weak 
> > instruments that allows clustering, namely Anderson-Rubin 
> tests/conf 
> > regions.  I discussed this in some detail at NASUG5, and 
> some of the 
> > material appears in the slides at 
> > http://www.stata.com/meeting/5nasug/wiv.pdf and some in 
> Stata Journal 
> > 7(4).  On Anderson-Rubin tests/conf regions, see the Dufour and 
> > Taamouti ref linked from http://www.stata.com/meeting/5nasug/wiv.pdf
> > (though I prefer constructing the confidence region rather than the 
> > projection onto individual axes that they advocate--the 
> latter can be 
> > deceptive if, say, there are two variables measuring a similar 
> > quantity and you can reject that both coefs are simultaneously zero 
> > because the conf ellipse does not include the origin, but the 
> > projections might both overlap zero).  Tests are easier than 
> > confidence regions for this approach, obviously.
> >
> > On Thu, Feb 28, 2008 at 8:09 AM, Danny Cohen-Zada 
> <danoran@bgu.ac.il>
> > wrote:
> >> I will try to edit my question to be clearer.
> >>
> >>
> >>  Suppose that i estimate the following iv model with the 
> cluster option.
> >>
> >>  ivreg2 y1 x1 x2 (y2 =  z1 ), ffirst cluster (x3)
> >>
> >>
> >>  I tested that my instrument is weak (using the clustered 
> >> f-statistic) and  found that my instrument is weak.
> >>
> >>  Then i run the conditional likelihood ratio test
> >>
> >>  condivreg y1 x1 x2 (y2= z1)
> >>
> >>  This command does not have the cluster option.
> >>
> >>  Supose that i find that the p-value of this test is 0.000 . Can i 
> >> trust this  result even when i use clustered standard errors in my 
> >> ivreg estimation.
> >>
> >>  Thanks
> >>
> >>  Danny
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