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st: XTOVERID after XTHTAYLOR Warning - endogenous variable(s) collinear with instruments, 3200 conformability error, and other errors


From   "M.M. Kramer" <M.M.Kramer@rug.nl>
To   statalist@hsphsun2.harvard.edu
Subject   st: XTOVERID after XTHTAYLOR Warning - endogenous variable(s) collinear with instruments, 3200 conformability error, and other errors
Date   Fri, 11 Nov 2011 10:16:36 +0100

Dear Statalist users,

After using xtoverid I receive the following 4 warnings: (1) "endogenous variable(s) collinear with instruments" ; (2) "*: 3200 conformability error"; (3) "s_egmm(): - function returned error", and (4) "<istmt>: - function returned error".

I use xtoverid to access the quality of the instruments after estimating an unbalanced panel using the xthtaylor command. In my estimations I also use time-dummies. For each individual in my data set I have a maximum of 52 monthly observations, so I included 51 time dummies to absorb aggregate time effects.

From an earlier discussion with Mark Schaffer I understood that when running xthtaylor with an unbalanced panel, 3 instruments (a mean, a demeaned and a GLS transformation) are created from the time-varying exogenous variables. In an unbalanced panel the GLS transformation is added to the estimation as another endogenous variable. Given that time dummies are also time-varying and exogenous, they will be transformed and used as instruments. The warnings I receive very likely have to do with these GLS transformed time dummies that are added as endogenous variables. When limiting my estimation to a balanced panel, only the 1st error message ("Warning - endogenous variable(s) collinear with instruments") remains, but xtoverid provides me with useful output.. When removing the time dummies and using my whole unbalanced panel all error messages disappear, except that after all the output Stata returns (" xtoverid error: internal reestimation of eqn differs from original"), but I ignored this so far.

My question is, what can I do? I want to include the time-dummies and use all my data (for most individuals I do not have 52 monthly observations, so my data set would be severely reduced when using only the balanced data set). Another issue is that it feels a little awkward to use time dummies as instruments, as they do not have any cross sectional variation, but that's what xthtaylor does.

Thanks for your help.
Marc


--
Marc Kramer
University of Groningen
Faculty of Economics & Business
Department of Economics, Econometrics and Finance
Room WSN 860
P.O. Box 800
9700 AV Groningen
Tel.: 050-363.4532 / 3685

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