Dear all,
I am estimating two panel data regressions, which take the form:
Y1 = a + b1X1 + b2LX1 + b3L2X1 + b4Dummies
Y2 = a + c1Y1 + c2X1 + c3Dummies
In the first regression, the 1st & 2nd lag of X1 is added & the dummies
are the same in the 1st & 2nd regression. I am using pooled OLS but
adding the fixed effects manually (so basically replicating fixed
effects). I am not sure what to do about endogeneity. Can I use the
normal Durbin-Wu-Hausman test, i.e. doing the first regression as above
& then saving the residuals, running the second regression with the
saved residual & perform the test? Moreover, I am not sure what to do
then (in case OLS is not consistent), as I have X1 & dummies in both
regressions.
Thanks for your help,
Cordula
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