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From |
"Luis Ortiz" <luis.ortiz@upf.edu> |

To |
<statalist@hsphsun2.harvard.edu> |

Subject |
st: RE: Re: other ways in dealing with endogeneity other than IV? |

Date |
Wed, 7 May 2008 13:00:23 +0200 |

-----Mensaje original----- De: owner-statalist@hsphsun2.harvard.edu [mailto:owner-statalist@hsphsun2.harvard.edu] En nombre de Kit Baum Enviado el: miércoles, 07 de mayo de 2008 12:35 Para: statalist@hsphsun2.harvard.edu Asunto: st: Re: other ways in dealing with endogeneity other than IV? In Austin's excellent Stata Journal (7:4, 2007) article, he discusses the usefulness of fixed effects models to deal with a certain kind of 'endogeneity', which he describes as correlation between regressor and error. It is true that in the model y_it = X_it b + u_it on panel data, with X strictly exogenous, there will be an endogeneity problem if there is unobserved heterogeneity that depends only on who you are (only on i). This arises because the true DGP is y_it = X_it b + [ a_i + u_it] and if a_i (individual-specific characteristics) are correlated with observed X's, the error term is correlated with the regressors and OLS is inconsistent. That can be dealt with, as he discusses, with fixed effects, expressing a_i as a parameter to be estimated using individual-specific dummy variables or the within transformation, a la -xtreg, fe- or -areg-. BUT if the original assumption that X is exogenous -- uncorrelated with u -- is not appropriate, then there is conventional endogeneity in the equation as well as unobserved heterogeneity. Fixed effects will deal with the latter, but not the former, and fixed effects will be just as inconsistent as pooled OLS. That is the point I was making. In that circumstance you need an IV fixed-effects estimator such as that implemented by -xtivreg, fe- or -xtivreg2, fe-, or an estimator implementing the first difference transformation with IV (- xtivreg, fd- or -xtivreg2, fd-). Kit Baum, Boston College Economics and DIW Berlin http://ideas.repec.org/e/pba1.html An Introduction to Modern Econometrics Using Stata: http://www.stata-press.com/books/imeus.html On May 7, 2008, at 02:33 , Austin wrote: > Kit et al.-- > A fixed-effects model deals with one very specific type of endogeneity > due to omitted variables that vary only across groups in i() and not > within. Hence the discussion of -xtreg- in > http://www.stata-journal.com/article.html?article=st0136 * * 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: Re: other ways in dealing with endogeneity other than IV?***From:*Kit Baum <baum@bc.edu>

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