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st: re: simultaneous equations

From   Kit Baum <>
Subject   st: re: simultaneous equations
Date   Fri, 27 Feb 2009 10:54:50 -0500

Nick said

With coefficients of the order of 1e8 there seems to be a massive
problem with the data. Look (again?) at the data, e.g. using a scatter
plot matrix. There could be a substantial outlier, or some built-in
dependency, or something else. Whatever it is, it is not obvious that
any model can make sense of the predictor set you are using.


As you adviced me I tried ivregress 2sls ... and obtained:

ivregress 2sls expshare b2b l1 age l4a (normscore = l11a l10),
note: l10 dropped because of collinearity

Instrumental variables (2SLS) regression               Numbe

MMolina did not follow my advice to examine the first stage regressions in a 2SLS context. I still contend that whatever is overwhelmingly screwy might be found by that examination. I had advised using ivreg, first, but ivregress 2sls , first will work as well.

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

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