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Re: st: endogeneity and IV

From   "sistoand80" <[email protected]>
To   "statalist" <[email protected]>
Subject   Re: st: endogeneity and IV
Date   Fri, 29 Oct 2004 16:44:29 +0200

Dear Mark,
i need some suggestions about the problem of over-identifying restrictions. If I tape

xtabond y X

stata instruments Ld.y with its own lags (in level) from t-3 to t and, if you think at X as a vector of exogenous variables, d.X. The degree of freedom of sargan test is the number of instruments minus 1 (the variable instrumented). If, in this case, the sargan reject the null hypothesis, it would mean that X are not fully exogenous or I would expect this result as the lagged dependent variable has been instrumented only with its own lags?

If I tape

xtabond y, pre(X)

stata would instrument Ld.y with lags of y and X in level (y from t-3 and X from t-2). In this case, if Sargan test does not reject the null, it means that X variables are not predetermined and it may be considered as strictly exogenous covariates? And if the Sargan rejectes the null, it means that these variables are endogenous? (I've already red about the small power of Sargan test that tends to overreject the null in presence of heteroskedasticity).
Thank You very much for your kindly reply,
best regards

Andrea Sisto
University of Eastern Piedmont
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