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st: re: ivreg vs reg3

From   Kit Baum <[email protected]>
To   [email protected]
Subject   st: re: ivreg vs reg3
Date   Fri, 7 Jan 2005 14:16:18 -0500

Rajdeep said

I have a system of two equations, which I have been trying to estimate both
through equation-by-equation "ivreg" and also 3-SLS using "reg3". However,
the point-estmates in the two procedures seem to differ a lot. Crucially,
the co-efficients of the instruments used in ivreg becomes all insignificant
in reg3. Can anybody shade some light on why is it happening this way. For
IV procedure, I used both ivreg and ivreg2 with GMM option

Are you sure that in your ivreg(ivreg2) single equation estimates you are using the same instrument list for both equations? In reg3, you give only one instrument list, which applies to all equations.

The use of a system (full information) estimator theoretically contains a potential gain in efficiency which would make coefficient estimates more precise. But a limited-information estimator (ivreg on each equation) has one clear advantage: if you totally misspecify eqn 1, your estimates of eqn 2 are not affected. When you estimate them jointly, the specification error in one equation a.s. pollutes the entire system. So one explanation for what you are getting from ivreg vs. reg3 would be that you have some specification problems in one of the equations.

Kit Baum, Boston College Economics

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