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st: re: xtivreg2 - Incomplete computation of first stage regression

From   Kit Baum <>
Subject   st: re: xtivreg2 - Incomplete computation of first stage regression
Date   Sun, 28 Feb 2010 10:18:27 -0500

I expect that Mark Schaffer will chime in on this soon if he is online; I have brought it to his attention. It is a problem with Mark's -xtivreg2- (SSC), which is a 'wrapper' for our -ivreg2- (SSC). Although the xtivreg2 call in this example does not work for the lagged endogenous variable, the same call to -ivreg2- does:

webuse grunfeld, clear
// xtivreg2 invest (mvalue L.kstock = L.mvalue time), fe first

ivreg2 invest (mvalue L.kstock = L.mvalue time), first

suggesting that something is getting lost in the 'wrapper' logic.  An (admittedly inelegant) solution for the time being would be to just create the variable lkstock = L.kstock which should then work fine.

I agree that the code should gracefully handle this issue, no matter what is asked, but from an econometric standpoint, why would a lagged variable be correlated with the time-t error term? If there is some evidence (e.g., via a C-test with endog()) that this variable must be considered endogenous, I would suspect that the specification of the equation is faulty, as the computation of that Durbin-Wu-Hausman test has as its maintained hypothesis that the specification is correct.


Kit Baum   |   Boston College Economics & DIW Berlin   |
                              An Introduction to Stata Programming  |
   An Introduction to Modern Econometrics Using Stata  |

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