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Re: Re: st: Multiple endogenous regressors


From   Yuval Arbel <yuval.arbel@gmail.com>
To   statalist@hsphsun2.harvard.edu
Subject   Re: Re: st: Multiple endogenous regressors
Date   Fri, 21 Oct 2011 02:14:35 +0200

On Fri, Oct 21, 2011 at 2:02 AM, Christopher Baum <kit.baum@bc.edu> wrote:
> <>
> Yuval said, in response to Elizabeth's numbered questions,
>
>> (2) If I can't find sufficient instruments to run all 5 endogenous regressors at the same time, what potential problems might arise if I run each of the 5 endogenous regressors independently in 5 different 2SLS models?
>>
>
> Yuval: this is a very serious problem, which is known as "unidentified
> equations" - in which case you get biased and inconsistent estimates.
> For further details I suggest to look at the unidentified supply and
> demand equations presented in Ramu Ramanathan. But anyway you have to
> be sure that your model is correctly specified
>
>
> Wrong.  If an equation is unidentified or underidentified, you don't get biased nor inconsistent estimates -- you get NO estimates. You cannot estimate such an equation by any means.

Yuval: take for example the system of demand and supply :
Q=alpha0+alpha1P+u1
Q=beta0+beta1P+u2
If you solve this equation by ILS - you get a solution where
Q=constant1 and P=constant2. The problem is that it represents one
equilibrium point. That was my intention. So in this case you get a
solution, but it is biased
>
>
>> (4) Again assuming that I can find adequate instruments, I want to run the overidentification test akin to Basmann's F test and Hansen's J test. Can I still use these same overidentification tests for multiple endogenous variables?
>>
>
> Yuval: See my answer below. I don't see any reason to run an
> overidentification test.
>
>
> Strongly disagree. If you have an overidentified equation you should ALWAYS perform the test of overidentifying restrictions to see if there is evidence against the maintained hypothesis that the instruments are uncorrelated with the error process. Use -estat overid- after ivregress. The test is built in to Baum-Schaffer-Stillman -ivreg2- on SSC. The latter program will also do the equivalent of the Hausman test referred to, with less hassle than -hausman-, with its -endog()- option. See the ivreg2 help file or the B-S-S papers mentioned by Cam, both of which are freely available.

Yuval: I don't see the point of this test, because overidentification
is a structural problem of the system. In my opinion the Yu-Hausman
test is much better
>
> Kit
>
> 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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>



-- 
Dr. Yuval Arbel
School of Business
Carmel Academic Center
4 Shaar Palmer Street, Haifa, Israel
e-mail: yuval.arbel@gmail.com

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