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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 08:47:35 -0500

<>
John writes 

how does one do single-equation 
estimation with in the context of a non-recursive system.  Again, here 
is the example:

Eq1: y = x1 + x2 + z
Eq2: x1 = m1 + m2 + x2 + z
Eq3: x2 = n1 + n2 + x1 + z
Eq4: m1 = q1 + q2 + z
Eq5: m2 = p1 + p2 + z

The predicted value of x2 enters in Eq. 2; however, the predicted value 
of x1 enters in Eq. 3. So, how does one go about estimating this 
non-recursive model using a single-equation estimator?


In the textbook example used to motivate 2SLS, we write down a demand equation and a supply equation, both of which contain Q and P along with demand shifters and supply shifters. How is that different from eq2-3?

Q = b0 + b1 P + b2 Y + e
P = g0 + g1 Q + g2 R + g3 T + v

with Y=income, R=rainfall, T=temperature.

Those who developed IV / 2SLS were able to consistently estimate these equations by limited-information (single-equation)  before systems estimators were devised. For that matter LIML could be used to estimate these equations as well (in either -ivregress- or -ivreg2- from SSC).

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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