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st: Instrumental variables and panel data


From   Jaime Gómez <jaime.gomez@unizar.es>
To   <statalist@hsphsun2.harvard.edu>
Subject   st: Instrumental variables and panel data
Date   Wed, 7 Oct 2009 00:12:43 +0200

Dear Statalisters

We have a model in which firm performance depends on (1) the order of entry
and (2) a possibly endogenous variable and (3) other variables, including
time dummies. First, we were suggested to use instrumental variable
techniques and to provide HAC standard errors, something we have already
done with the ivreg2 command in Stata and using an external instrument. We
tested for the exogeneity of the possibly endogenous variable through the
endog( ) option and the test shows that the variable could be considered
exogenous. 

In a second step, we have been suggested to use the panel structure of our
data and, simultaneously, to consider the endogeneity problem. Ideally, we
would like (1) to estimate a panel data model with instrumental variables
and HAC errors, (2) to test for the exogeneity of our possible endogenous
variable and (3) to check whether the fixed or random effects model is
appropriate. So, it seems that the xtivreg or xtivreg2 commands could be the
solution. Nevertheless, we have several problems:

1) the order of entry is represented through time invariant dummies
(pioneer, second mover, third mover, ...) that drop when we estimate a fixed
effects model, but we are (very) interested in the values of the
coefficients. So it seems that the only way of getting these coefficients is
to estimate a random effects model and check whether this is appropriate
with a Hausman test (If I reject the random effects model, ¿could I get the
order of entry coefficients through another panel data technique?)

2) Before doing so we have to find the way of getting HAC standard errors. I
think I would know how to do this with xtivreg2 (I am assuming that the
options are similar to the ones in ivreg2), nevertheless it seems that there
is no way of estimating a random effects model with xtivreg2. The problem
with using xtivreg seems that the estimation and postestimation options are
much more restricted than with xtivreg2 (for example, how do I get HAC
errors? How do I test for the endogeneity of the regressor? Should I use
xtoverid for testing for the appropriateness of the random effects model?). 

In summary, is there any way for treating all these issues (possibly omitted
variables that advise the use of panel data techniques, time invariant
variables of interest, HAC standard errors and instrumental variables) at
the same time? Alternatively, could you suggest another strategy to tackle
all the problems with Stata (perhaps sequentially?)?

Thanks a lot
Sincerely
Jaime Gómez
Universidad de Zaragoza


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