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From |
"Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk> |

To |
<statalist@hsphsun2.harvard.edu> |

Subject |
st: RE: First stage of panel IV |

Date |
Mon, 11 Jun 2012 12:00:39 +0100 |

Filippos, You need to tell us more - what versions of software you are using, what the actual output is (or the relevant pieces of the output), etc. More comments below. > -----Original Message----- > From: owner-statalist@hsphsun2.harvard.edu > [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of > Filippos Petroulakis > Sent: Sunday, June 10, 2012 11:59 PM > To: statalist@hsphsun2.harvard.edu > Subject: st: First stage of panel IV > > Hi all, > > I am running a panel first differences (fixed effects) model. > My regression is of the sort > > y_it=b_0+b_1 x_it + b_k demographic_covariates + e_it > > x_it is endogenous so I have an instrument z_it. > > I essentially have 3 issues and I list them in descending > order of importance. > > 1) xtivreg2 is running the first stage of x_it on z_it and > the exogenous demographic covariates as OLS instead of fixed > effects or first differences. I doubt it very much (having programmed -xtivreg2-, I think I'm well placed to say this!). -xtivreg2- follows the standard procedure of transforming the full set of variables used in the same say, i.e., the within or between transformation is applied to all variables. > I honestly do not know whether > this is due to theory but it seems to be very odd, especially > given the fixed effects is definitely the correct > specification for the model as a whole, and so I would think > it has to be the case for the first stage as well. I can do > the 2 stages manually and correct the errors using the > process outlined here > (http://www.stata.com/support/faqs/stat/ivreg.html) and I > presume the fact that I have a panel doesn't change much, but > my issue is basically whether this is the correct thing to do. > > 2) xtivreg and xtivreg2 give me pretty different results, > which is due to the fact that xtivreg drops about half of the > observations in the first stage. I checked and the variable > that is causing the dropping (for whatever reason) is the > dependent variable. I am thus positive that xtivreg is the > wrong one but am still worried. Anyone knows why this happens? Again, I doubt the problem is the one you suspect. My guess is that Most likely you are using different estimators, e.g., fixed effects with -xtivreg2- and random effects with -xtivreg-. But you need to show us the output. > 3) Finally, at some point I will need to include a further > two variables, call them w_it and q_it, which are surely > endogenous. I don't care about instrumenting for them as I am > not interested in a causal interpretation, but the problem is > that they are also endogenous to x_it. So my first stage will > be regression x_it on variables that are endogenous to itself > and to y_it. Is that an issue I should be concerned about? This is confusing. Do you mean that w_it and q_it are correlated with x_it? That's not a problem. The key requirement is that in y_it=b_0+b_1 x_it + b_k demographic_covariates + w_it + q_it + e_it , w_it and q_it should be uncorrelated with e_it. If they are correlated, then you have two options: (1) Add w and q to your list of endogenous variables. But as you say, you will need instruments for them. And if you aren't interested in a causal interpretation, then maybe you shouldn't bother. (2) Instead of using w and q as regressors and instrumenting them, insert the instruments as (exogenous) regressors. HTH, Mark > Thank you very much in advance - answers to any or all of > those issues will be immensely appreciated. > > Best, > > Filippos Petroulakis > > * > * For searches and help try: > * http://www.stata.com/help.cgi?search > * http://www.stata.com/support/statalist/faq > * http://www.ats.ucla.edu/stat/stata/ > -- Heriot-Watt University is the Sunday Times Scottish University of the Year 2011-2012 Heriot-Watt University is a Scottish charity registered under charity number SC000278. * * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/

**References**:**st: First stage of panel IV***From:*"Filippos Petroulakis" <petroulakis@econ.umd.edu>

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