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st: newey2 and first-stage results


From   "Todd D. Kendall" <todddavidkendall@gmail.com>
To   statalist@hsphsun2.harvard.edu
Subject   st: newey2 and first-stage results
Date   Wed, 25 Jun 2008 16:59:44 -0500

I have learned a lot from reading Statlist -- thanks to everyone who
writes and answers questions.  Now I have a question of my own, and I
haven't been able to find anything in the archives so far.

I am trying to figure out just what newey2 does with instruments.
When I specify

. newey2 y (x1 =z1) x2, lag(1) first

STATA gives me just the first-stage results I would expect -- in fact,
I can replicate these first stage results with

. reg x1 z1 x2

However, if I try taking the predicted values from this first stage:

. predict x1hat

and "manually" running the IV results:

. newey y x1hat x2, lag(1)

I get the right coefficients (obviously), but the wrong standard
errors.  I surmise that newey2 must be doing something special with
the part of the covariance matrix associated with the first-stage
fitted values.  I have tried to read through the newey2 ado file, but
can't see exactly what's going on.

I'd appreciate any thoughts from anyone who understands newey2 better than I.

Thanks,
Todd
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