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From |
Narasimhan Sowmyanarayanan <narasimhan.sowmyanarayanan@gmail.com> |

To |
statalist@hsphsun2.harvard.edu |

Subject |
Re: st: Re: reg3 |

Date |
Mon, 16 Feb 2009 09:01:10 -0500 |

Thank you. These suggestions are very helpful. I appreciate your time and effort in writing them. On Mon, Feb 16, 2009 at 6:56 AM, Kit Baum <baum@bc.edu> wrote: > <> > It would be much easier to figure out the identification status of these > equations if you estimated them one at a time with ivregress or ivreg2. > As far as I can see the C equation can be estimated with OLS, as there are > no RHS endogenous variables. The P equation needs one instrument (for C) and > you have both A and G1-G4 available, so it is identified. > > You are correct in noting that these products of exogenous and endogenous > are not to be considered exogenous. Thus the OS equation is not identified, > as you need three instruments and only have two (S2 and B). The D equation > is hopelessly unidentified, as P, C, PC, PST, CST and PCST should all be > considered endogenous, and the only excluded instruments are S2 and B. > > This problem might be dealt with by the method laid out by Wooldridge in > Econometric Analysis of Cross Section and Panel Data, 2002, p.231, where he > considers the case of a nonlinear function of an exogenous regressor (in > this case the square of, for instance, C). You should be able to create > additional instruments with powers and cross-products of the exogenous > variables in the model -- not merely the excluded S2 and B, but also ST, S, > A, and G1-G4 (although powers and cross-products of dummies are not of much > use). > > I would try estimating just the D equation, explicitly indicating to > ivregress or ivreg2 that the PC, PST, CST and PCST are endogenous, and using > powers/cross products of _all_ exogenous vars as instruments, and see what > you get. As a recent posting of mine points out, there is no need to employ > a systems estimator here. It is probably possible to force reg3 to estimate > the right equation, but recognize that if you let it figure out what is > endogenous, it has created inconsistent estimates of ALL the equations by > mistakenly treating the product terms as exogenous. > > > 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 Feb 16, 2009, at 02:33 , Narasihman wrote: > >> >> I was wondering if it is correct to test interactions and non-linear >> effects with reg3. My system of equations is as follows. I am trying >> to test for non-linear effects in three of the equations. >> >> reg3 (P ST C S S^2 B) >> (C ST S S^2 ) >> (D A S G1-4 (categorical) P ST C P*C P*ST C*ST P*C*ST) >> (OS ST D C P S A G1-4) >> >> I will appreciate any inputs. What worried me in this set up was that >> while the endogenous variables were fine, the interaction terms (of >> endogenous variables) are construed as exogenous variables. Also, ST >> in my model is an exogenous variable that is not determined by the >> model, I have some interaction terms based on ST with some endogenous >> variables in the model. >> >> While I am getting some output, and it seems to be theoretically >> meaningful, I am wondering if this is correct? I was looking up >> examples on the stata manual and I guess it did not explicitly talk >> about non-linear models in the manual. I would appreciate if anyone >> has inputs to share on this. I am sorry if this question sounds naive. > > * > * For searches and help try: > * http://www.stata.com/help.cgi?search > * http://www.stata.com/support/statalist/faq > * http://www.ats.ucla.edu/stat/stata/ > * * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/

**References**:**st: Re: reg3***From:*Kit Baum <baum@bc.edu>

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