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st: Re: How to correct standard errors of a 2sls performed by


From   Kit Baum <baum@bc.edu>
To   statalist@hsphsun2.harvard.edu
Subject   st: Re: How to correct standard errors of a 2sls performed by
Date   Sat, 6 Feb 2010 07:39:51 -0500

On Feb 6, 2010, at 2:33 AM, John wrote:

> What if the system is non-recursive (with feedback loops) and with 
> multiple equations, e.g.,
> 
> y = x1 + x2 + z
> x1 = m1 + m2 + x2 + z
> x2 = n1 + n2 + x1 + z
> m1 = q1 + q2 + z
> m2 = p1 + p2 + z
> 
> Here one would need reg3, but how would one ensure consistency of 
> standard errors (in the presence of heteroskedasticity), apart from 
> bootstrapping (and Roodman's -cmp- would not here as it is only for 
> recursive systems)?


No, you don't _need_ reg3. A systems estimator is never needed unless you want to impose constraints across equations on the coefficients. There is nothing wrong with limited-information (single-equation) estimation of each equation in turn. A systems estimator can provide efficiency; but on the other hand any misspecification means that every equation's coefficients can become inconsistent if one equation is flawed.

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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