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st: re: How to correct standard errors of a 2sls performed by hand ?


From   Kit Baum <baum@bc.edu>
To   statalist@hsphsun2.harvard.edu
Subject   st: re: How to correct standard errors of a 2sls performed by hand ?
Date   Fri, 5 Feb 2010 17:11:11 -0500

<>
No need to do any bootstrapping if it is just linear regression:

// how to fix 2SLS estimates done 'by hand'
sysuse auto, clear
ivreg2 price (weight = turn foreign) headroom, small
estat vce
di e(rmse)
mat v2sls = e(V)
// First stage reg
qui reg weight turn foreign headroom
predict double what, xb
// Second stage reg
qui reg price what headroom
scalar rmsebyhand = e(rmse)
// the 'wrong' VCE, calculated from the instruments
mat vbyhand = e(V)
scalar dfk = e(df_r)
// the correct resids: orig regressors * second stage coeffs 
g double eps2 = (price - _b[what]*weight - _b[headroom]*headroom - _b[_cons])^2
qui su eps2
// corrected RMSE, based on the correct resids
scalar rmsecorr = sqrt(r(sum) / dfk)
// corrected VCE, using the right s^2
mat vcorr = (rmsecorr / rmsebyhand)^2 * vbyhand
mat li vcorr
// check to see that it equals the real 2SLS VCE
mat diff = v2sls - vcorr
mat li diff


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


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