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st: ivprobit estimation with weak instruments


From   "Danny Cohen-Zada" <danoran@bgu.ac.il>
To   <statalist@hsphsun2.harvard.edu>
Subject   st: ivprobit estimation with weak instruments
Date   Mon, 10 Mar 2008 17:34:45 +0200

It is known that when one uses weak instruments, the standard error of the endogenous regressor is baised.

Suppose for example that i have the following model in which y2 is the endogenous regressor:


1) y1= ao + a1*y2 + a2*x1 (y1 - is a dichotomous variable)
2) y2=b0+b1*x1+b2*z1 (z1 is the excluded instrument0

(one instrument, one endogenous regresssor).



In order to obtain unbaised standard errors (due to the problem of weak instruments) i thought to do the following.

regress y2 x1 z1
predict, ppu
probit y1 ppu z1, cluster(x3) vce(boots)

Am i correct that by applying this procedure i can obtain the correct standard errors of the coef. a1?

In addition, i want to graph the predicted probability as a function of y2 , including in the graph the correct confidence interval (I keep all the other variables are at their mean). I thought to run the following commend after the probit estimation:


prgen ppu , f(30) t(38) rest(mean) gen(pp) gap(1) ci bootstrap


Am i correct that thus i get the correct confidence interval for the predicted probability (even when my instruments are weak)?

Thanks,

Danny



Dr. Danny Cohen-Zada
Department of Economics
Ben-Gurion University of the Negev
P.O.Box 653
Beer-Sheva 84105
Israel

Tel: +972-8-6472301
Fax: +972-8-6472941

http://www.econ.bgu.ac.il/facultym/danoran/main.htm
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