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Re: st: Simultaneous Equations


From   "Mark Schaffer" <[email protected]>
To   [email protected]
Subject   Re: st: Simultaneous Equations
Date   Fri, 3 Oct 2003 18:33:28 +0100

Ryan,

Date sent:      	Fri, 3 Oct 2003 13:12:28 -0400 (EDT)
From:           	Ryan Mutter <[email protected]>
To:             	[email protected]
Subject:        	st: Simultaneous Equations
Send reply to:  	[email protected]

> I am interested in estimating the following equation:
> 
> X = a + bY + cM + error
> 
> where X, Y, and M are variables and a, b, and c are paremeters to be
> estimated.  Y is also determined by X as follows:
> 
> Y = d + eX + fD + eM + fZ + error
> 
> where Z = D*M.
> 
> My question:  Can I estimate this system using 2SLS with D, M, and Z
> as instruments for Y?

I think the answer is yes - you can estimate the X equation (not the 
system) using 2SLS, treating Y as endogenous and using D and Z as the 
excluded instruments.  You have one overidentifying restriction, so a 
Sargan or Hansen J overidentification test (i.e., a test of 
instrument validity) would be a good idea.  FYI, ithis is an 
automatic output of ivreg2.

--Mark

> My concern is that Z = D*M and M is in the
> first equation.
> 
> Thanks.
> 
> *
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Prof. Mark E. Schaffer
Director
Centre for Economic Reform and Transformation
Department of Economics
School of Management & Languages
Heriot-Watt University, Edinburgh EH14 4AS  UK
44-131-451-3494 direct
44-131-451-3008 fax
44-131-451-3485 CERT administrator
http://www.som.hw.ac.uk/cert
*
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*   http://www.stata.com/support/statalist/faq
*   http://www.ats.ucla.edu/stat/stata/



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