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st: two stage least squares vs. sem


From   Jonathan Richards <richards.868@buckeyemail.osu.edu>
To   "statalist@hsphsun2.harvard.edu" <statalist@hsphsun2.harvard.edu>
Subject   st: two stage least squares vs. sem
Date   Wed, 29 Aug 2012 16:39:54 +0000

Hey everyone - 

I am trying to run a model with three endogenous independent variables. But the instruments for each endogenous variable are not significantly correlated with the other endogenous variables. So when I used xtivreg2, which puts all the instruments into each first stage equation, there was underidentification.

I thought of running an sem model in with a separate first stage equation for each endogenous variable. Then I wouldn't need to include all the instruments in each first stage equation.

Is this a good approach? Specifically, would such a model be asymptotically equivalent to 2SLS (if I included the exogenous variables from the second stage in each first stage equation)? And actually, would I need to include the exogenous variables from the second stage in each first stage?

Any insight would be much appreciated.

Thanks.


Brent

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