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Re: st: 3 simultaneous equations with large amount of dummies


From   Kit Baum <baum@bc.edu>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: 3 simultaneous equations with large amount of dummies
Date   Wed, 25 Mar 2009 06:09:23 -0400

<>
Along the lines of many postings, unless you have cross-equation restrictions, there is nothing wrong with estimating each equation of this system separately using a limited-information estimator. It is a strangely common misconception that systems of linear equations must be estimated with -reg3-. -xtivreg2, fe- (findit xtivreg2) will handle the fixed effects and give you consistent estimates of each equation's parameters if the equations and instrument sets are properly specified.

The only thing a systems estimator can give you is efficiency (and a system with > 9000 parameters will not be a pretty sight). The downside of systems estimation is that one misspecification error will pollute estimates of all equations. For these reasons (as well as convenience) a single-equation estimation approach has much to recommend it.

Kit Baum   |   Boston College Economics & DIW Berlin   |   http://ideas.repec.org/e/pba1.html
An Introduction to Stata Programming | http://www.stata-press.com/books/isp.html
   An Introduction to Modern Econometrics Using Stata  |   http://www.stata-press.com/books/imeus.html



On Mar 25, 2009, at 02:33 , xinzheng wrote:

(1) I am estimating a simultaneous equation system with 3 equations, but I need to include firm fixed effects in each equation. If I just use reg3 and add firm dummies, there are two many firms (>3000), it takes a very long time and sometimes I could not get the results. I was wandering what kind of other STATA command I can use.

(2) I am running a IV estimation with a firm level fixed effect, if I add firm dummies, there are more than 3000, which makes it impossible to get the results. Is there any other STATA command I can use?

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