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Re: Re: st: limiting instruments in an ivprobit


From   Christopher Baum <kit.baum@bc.edu>
To   "statalist@hsphsun2.harvard.edu" <statalist@hsphsun2.harvard.edu>
Subject   Re: Re: st: limiting instruments in an ivprobit
Date   Wed, 27 Mar 2013 10:48:35 +0000

<>
On Mar 27, 2013, at 2:33 AM, Andy wrote:

> To clarify, in the probit analysis, I use an interaction term between
> a dummy variable and the potentially endogenous variable.  When Stata
> includes this in the first stage, it is attempting to predict the
> endogenous variable with the interaction term, which I would not like
> to do.
> 
> My attempt to limit which variables are used as instruments was done
> with this part of the ivprobit notation, which the example in
> stackoverflow also contains: (varlist2 = varlist_iv)
> Even when I attempt to specify a specific variable as the instrument,
> State still includes all independent variables as instruments in the
> probit analysis.  Is there some way to specify what will serve as the
> instrument that I am missing?
> 
> Here is the code I am using:
> ivprobit failure rebpolwingnew logpop loggdpc democracy
> c.HumanitarianAid#c.rebpolwingnew tim tim2 tim3 (HumanitarianAid=
> drought) , first
> 
> The output lists the interaction term as an instrument, and I would
> prefer to remove it as an instrument:
> rebpolwingnew logpop democracy c.HumanitarianAid#c.rebpolwingnew tim
> tim2 tim3 drought1

The issue is not how to remove the interaction as an instrument. The issue is that you MUST include it as an endogenous
variable. It is a function of an endogenous variable, thus it is itself endogenous. Jeff Wooldridge's MIT Press book deals
with this issue. If you include y2 and y2*z1 in the model, then both of those are endogenous. If z2 is a valid instrument for 
y2, then z2*z1 is a valid instrument for the interaction, which should appear on the left side of the equals sign.

Kit


Kit Baum   |   Boston College Economics & DIW Berlin   |   http://ideas.repec.org/e/pba1.html
                             An Introduction to Stata Programming  |   http://www.stata-press.com/books/isp.html
  An Introduction to Modern Econometrics Using Stata  |   http://www.stata-press.com/books/imeus.html
                                                                                                   | http://www.crup.com.cn/Item/111779.aspx	


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