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RE: st: RE: ivreg2 questions


From   "Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk>
To   <statalist@hsphsun2.harvard.edu>
Subject   RE: st: RE: ivreg2 questions
Date   Mon, 19 Mar 2012 23:29:57 -0000

Rob,

> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu 
> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of 
> Robert Davidson
> Sent: 19 March 2012 23:25
> To: statalist@hsphsun2.harvard.edu
> Subject: Re: st: RE: ivreg2 questions
> 
> Thank you for the response.
> 
> I was looking at the Cragg Wald F-statistic, testing if the 
> equation is weakly identified, and I did check the 
> correlation with of the endogenous regressor and the 
> instrument.  I had always read that the correlation generally 
> needs to be high between the endogenous regressor and the 
> instrument in order for it to be a good instrument.
> Is it just that the partial correlation between the two 
> should be high?

Yes, exactly.

--Mark

> 
> Thank you,
> Rob
> 
> On Mon, Mar 19, 2012 at 6:53 PM, Schaffer, Mark E 
> <M.E.Schaffer@hw.ac.uk> wrote:
> > Rob,
> >
> >> -----Original Message-----
> >> From: owner-statalist@hsphsun2.harvard.edu
> >> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Robert 
> >> Davidson
> >> Sent: 19 March 2012 21:38
> >> To: statalist@hsphsun2.harvard.edu
> >> Subject: st: ivreg2 questions
> >>
> >> Dear Statalist,
> >>
> >> I am using ivreg2 (3.1.03) authors cfb & mes and have a 
> few questions.
> >>
> >> My model is X = A + B + C (1)
> >> The endogenous regressor, C, is binary, and I am using 1 
> continuous 
> >> instrument (D) for C.
> >>
> >> Q1) does this version of ivreg2 not produce the Stock-Yogo 
> relative 
> >> bias values?  My output only include the size values.
> >
> > It does.  However, the maximal IV relative bias test 
> requires that the estimation be sufficiently overidentified 
> (the reason is that the IV estimator has moments only up to 
> the degree of overidentification).  You've got an 
> exactly-identified model, so the relative bias test isn't 
> well defined.
> >
> >> Q2) I have had a difficult time finding valid instruments 
> for C.  I 
> >> have tried several that had reasonably high and significant 
> >> correlations with C and no significant correlation with the error 
> >> term from equation (1), but my f-stats were often around 7 or 8 
> >> (reasonably weak instruments).  Then, I tried another 
> variable that 
> >> was not highly correlated with C and the f-stat was about 
> 25 and the 
> >> results were similar to the main estimation.  Is it common that a 
> >> variable that does not seem strongly associated with the 
> endogenous 
> >> regressor can serve as such a strong instrument or am I doing 
> >> something wrong?
> >
> > This might just be a misunderstanding.  The F stat is a 
> kind of measure of partial correlation, i.e., with the 
> exogenous covariates partialled out.  Perhaps when you were 
> checking the correlations of the IVs with C, you were looking 
> at correlations instead of partial correlations?
> >
> > HTH,
> > Mark
> >
> >> I know I cannot
> >> test for exogeneity, but this new variable does not seem  
> correlated 
> >>with the error term from equation (1).
> >>
> >> I apologize that this may have been sent twice.
> >>
> >> Thank you,
> >> Rob
> >>
> >> *
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-- 
Heriot-Watt University is the Sunday Times
Scottish University of the Year 2011-2012

We invite research leaders and ambitious early career
researchers to join us in leading and driving research
in key inter-disciplinary themes. Please see 

    http://www.hw.ac.uk/researchleaders

for further information and how to apply.

Heriot-Watt University is a Scottish charity
registered under charity number SC000278.


*
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