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Re: st: IV vs 2SLS


From   Shikha Sinha <shikha.sinha414@gmail.com>
Subject   Re: st: IV vs 2SLS
Date   Thu, 2 Aug 2012 17:31:53 -0700

Thanks, David, but which is the preferred one and what are the advantages?

On Thu, Aug 2, 2012 at 5:29 PM, David Greenberg <dg4@nyu.edu> wrote:
> There is a reason for the difference in standard errors. When you
> predict x3_hat and use the predicted value in your second equation,
> Stata doesn't know that x3_hat is not an observed variable, but an
> estimate with some uncertainty attached to it. It treats this variable
> as observed, and without measurement error. Consequently, this
> procedure underestimates the standard errors of estimates obtained
> using the second strategy. David Greenberg, Sociology Department, New
> York University
>
> On Thu, Aug 2, 2012 at 8:16 PM, Shikha Sinha <shikha.sinha414@gmail.com> wrote:
>> Dear all,
>>
>> What is the difference between IV and 2sls and which is the preferred
>> method to correct for endogeneity (advantage and disadvantage)?
>>
>> (a) ivreg2 y x1 x2 (x3=z)
>>
>> (b) reg x3 z x1 x2
>> predict x3_hat
>> reg y x3_hat x1 x2
>>
>> By employing (a) and (b) I get similar coeff, but standard errors are
>> different.
>>
>> Thanks,
>> Shikha
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