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Re: st: endogenous interaction term


From   Gordon Gordon <gordon.stat@yahoo.com>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: endogenous interaction term
Date   Tue, 21 Oct 2008 11:26:38 -0700 (PDT)

Thanks a lot Austin!

However in my case, the endogenous variable X1 is a dummy variable, and my first stage regression is a probit model, then I plug the Inverse Mills Ratio to the second stage regression. It is not clear to me how to use the typical IV approach in this setting.  Could you advice?

Gordon



----- Original Message ----
From: Austin Nichols <austinnichols@gmail.com>
To: statalist@hsphsun2.harvard.edu
Sent: Monday, October 20, 2008 3:59:08 PM
Subject: Re: st: endogenous interaction term

Gordon <gordon.stat@yahoo.com>:
See e.g.
http://www.stata.com/statalist/archive/2004-08/msg00780.html
With multiple instruments and multiple endog vars, you may want to use
LIML so -ivreg2- will give you a little more room to pass the weak ID
tests of Stock and Yogo (see the help file for -ivreg2-, on SSC) since
LIML is slightly more robust to multiple weak instruments.

On Mon, Oct 20, 2008 at 1:06 PM, Gordon Gordon <gordon.stat@yahoo.com> wrote:
> Hi there,
>
> I would like to estimate the following equation:
>
> Y = b0+ b1*X1 +b2* X2 + b3*X1*X2
>
> X1 is a dummy variable and endogenous, X2 is exogenous and normalized.
>
> If there are no interaction term, I can apply either IV or Heckman two stage to correct the endogeneity of X1.
>
> However with the interaction term of X1*X2, I do not know how to deal with it.
>
> Any advice is much appreciated!
>
> Gordon
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