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Re: st: ivreg2 and endogeneity


From   Austin Nichols <austinnichols@gmail.com>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: ivreg2 and endogeneity
Date   Thu, 23 Jun 2011 16:49:16 -0400

Michele Mancini <mikmancinistata@gmail.com>:
First, think through theory--is X1 really a good instrument?  Are X2, X3, X4?

But also, as a rough guideline, look at stats in this order:
First, look at id stats.  If not weakly identified, then overid test
may have good power.
Second, look at overid test.  If can't reject null, maybe endogeneity
test has good power.
Third, look at endogeneity test.  If reject exogeneity, we prefer IV.

Note that an endogeneity test is a measure of whether IV differs from
OLS, so if you
are using bad exclusion restrictions, your IV may not differ from OLS
not because
there is no endogeneity problem but because your IV assumptions are wrong.

It looks to me like X1 is simply not a valid excluded instrument and
should not be used as such.
Perhaps it should be an included instrument, i.e. a control variable?

On Thu, Jun 23, 2011 at 4:28 PM, Michele Mancini
<mikmancinistata@gmail.com> wrote:
> Dear Statalisters,
> I have some questions regarding my ivreg2 estimation:

> My question is the following: as you can see the endogeneity test says that
> fd in actually exogenous and the Hansen J statistic strongly reject the
> null; should I treat fd as exogenous and use OLS instead of IV? The problem
> is that if I remove X1 from the instruments

> How can i interpret these results of the C statistics? Should I drop X1 and
> treat fd as endogenous? Or using OLS instead of IV?
> Thank you so much for your kind help.
> Regards,
>
> Michele Mancini
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