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From |
nicola.baldini2@unibo.it |

To |
statalist@hsphsun2.harvard.edu |

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

Date |
Sat, 10 May 2008 14:41:59 +0200 |

Belated thanks to both Kit and Austin for correcting/clarifying my post and sorry to all Statalist members if was obscure or if it was/sounded at least partially wrong. Nicola At 02.33 08/05/2008 -0400, you wrote: >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/

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