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re: Re: Re: RE: re:Re: st: Multiple endogenous regressors


From   Christopher Baum <kit.baum@bc.edu>
To   "statalist@hsphsun2.harvard.edu" <statalist@hsphsun2.harvard.edu>
Subject   re: Re: Re: RE: re:Re: st: Multiple endogenous regressors
Date   Fri, 21 Oct 2011 15:51:47 -0400

<>
Yuval said

Moreover, take for example the following system of Kensian (sic) equations:

C=a+bY+u
Y=C+I

Note, that the only way to get consistent estimates in this case is by
the ILS (you cannot employ here the 2SLS)


I''m sure the inability to use 2SLS on a simple Keynesian model will come as a surprise to those of us who write econometrics lecture notes and textbooks, as it is one of the most common textbook examples of IV.
An empirical counterexample:

. webuse klein

. ivregress 2sls consump (totinc = invest)

Instrumental variables (2SLS) regression               Number of obs =      22
                                                       Wald chi2(1)  =   24.24
                                                       Prob > chi2   =  0.0000
                                                       R-squared     =  0.8430
                                                       Root MSE      =  2.8442

------------------------------------------------------------------------------
     consump |      Coef.   Std. Err.      z    P>|z|     [95% Conf. Interval]
-------------+----------------------------------------------------------------
      totinc |   .4593425   .0932901     4.92   0.000     .2764971    .6421878
       _cons |   26.07967   5.571562     4.68   0.000     15.15961    36.99973
------------------------------------------------------------------------------
Instrumented:  totinc
Instruments:   invest


Apparently Yuval did not take my response to his point (4) too seriously.

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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