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st: Instrumental Variable Method and Probit

From   April Knill <[email protected]>
To   [email protected]
Subject   st: Instrumental Variable Method and Probit
Date   Thu, 20 Jan 2005 08:56:37 -0500

I have a cross-sectional time-series sample from which I am trying to
discern (generically) the following:

P(y=1) = a + Bx + Cy + e

B is endogenous so I have performed manually a 2SLS regressing first B onto a vector of independent variables,
predicting B* and then including this predicted value in the equation
above.  This of course is flawed in that the standard errors are not
adjusted as would be the case if an IV methodology were used.

I recently became aware of a wonderful command -ivprob- (or divprob),
which allows for an instrumental variable methodology and that will
correct the standard errors.  The problem is that this command does not
allow for clustering.  The data specifically involves firms (which is my
unit) across time in different countries so thus far I have used xtprobit
to account for correlation at the unit level.  To my knowledge there is no
command for xtivprob and no capability to cluster using ivprob.  Any idea
how to get around this?  If there is, does anyone know how to obtain a
Sargan's Test overidentification test statistic for this?  -Overid- does
not work unfortunately.  Can it be done manually perhaps?

April M. Knill
Ph.D. Candidate 2005
Robert H. Smith School of Business
University of Maryland

443.812.6425 MOBILE
[email protected]

Robert H. Smith School of Business
Leaders for the Digital Economy
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