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st: re: simultaneous equations

From   Kit Baum <>
Subject   st: re: simultaneous equations
Date   Sun, 1 Feb 2009 21:08:35 -0500

MMolina said

I run this command:

reg3 (normscore l1 b2b age l4a l11a l10) (expshare b2b l1 age normscore l4a)

And obtained this results. Could you please tell me if the Std. Error
found for the expshare variable may invalidate the analysis or create any
robustness problem?

I find it very strange, if expshare is really a fraction, that you get coefficients on the order of 10^8 on any regressor. Would you try running

ivreg expshare b2b l1 age l4a (normscore = l11a l10), first

and show us what you get from that regression? (you could also use ivregress 2sls ... , first if you are using Stata 10)

Also, is there a good reason (given definitions of the variables) that the constant term is dropped in your first equation?

This system is triangular, in that normscore can be estimated with OLS as it does not contain expshare. You may still want to estimate it with 3SLS, but something fishy is going on here. See what the single- equation estimates of your second equation reveal.

Kit Baum, Boston College Economics and DIW Berlin
An Introduction to Modern Econometrics Using Stata:

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