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st: RE: Instrumental variables


From   "Trivitt, Julie" <[email protected]>
To   <[email protected]>
Subject   st: RE: Instrumental variables
Date   Tue, 13 Jul 2004 09:27:05 -0500

I'm so excited, I finally get to contribute to the statalist after being
an observer for a few months.

Cordula,
I don't think your plan will work.  The instrument you suggested (c1x1)
will be perfectly collinear with b1X1 you have in the original equation.
You will need to find an instrument for X2 that is not in the original
equation.

Julie Trivitt
Economics PhD Student
Walton College of Business
University of Arkansas



-----Original Message-----
From: Cordula Stolberg [mailto:[email protected]] 
Sent: Tuesday, July 13, 2004 9:15 AM
To: [email protected]
Subject: st: Instrumental variables

Dear Statalisters,

Following on from my earlier problems with endogeneity and panel data, I

now have a question with regard to the choice of the instrumental
variable.
I have the regression (panel data, fixed effects)

Y b1X1 b2X2 b3dummies

and I suspect that X2 might be endogenous. Is it possible to obtain an 
instrument by first estimating

X2 c1X1

(where X1 is the same variable as the X1 in the first regression) and
then 
use the predicted values of X2 as the instrument for the first
regression?

Thanks for any suggestions,
Cordula



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