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Re: st: xtabond and instruments

From   "Mark Schaffer" <[email protected]>
To   [email protected]
Subject   Re: st: xtabond and instruments
Date   Fri, 17 Oct 2003 09:50:40 +0100


Date sent:      	Fri, 17 Oct 2003 09:27:45 +0200
From:           	Kai Kirchesch <[email protected]>
Organization:   	HWWA
To:             	[email protected]
Subject:        	st: xtabond and instruments
Send reply to:  	[email protected]

> Hi,
> I am using xtabond, and I want to include an additional instrumental
> variable to replace one specific explanatory variable. The manual only
> refers shortly to the inst option, but this option does not seem to
> create a link between my instrument and the variable I want to
> replace. Is it necessary to specify this link, or does xtabond know
> that this variable is an instrument for one particular variable, so I
> only have to specify this instrument with the inst option, and that's
> it? Thanks, Kai

That's not how single-equation IV works (Arellano-Bond is just a 
special case of single-equation IV estimation).  There are no 
separate links between the various excluded instruments and the 
endogenous variables they are instrumenting.  In 2SLS language, the y-
hats (fitted values of the endogenous regressors) are obtained by 
regressing the y's on *all* the instruments.

Linking the instruments to the various endogenous regressors can be 
done, and this is in effect what you do when you estimate a system of 
equations - you specify equations for each of your y's in which you 
say "this instrument appears and that one doesn't".  But when you 
estimate in a single-equation framework such as xtabond, the only 
structure that's imposed is in the equation you're estimating.

Hope this helps.


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Prof. Mark E. Schaffer
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
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