st: instruments in ivreg2

[Kit Baum <baum@bc.edu>]

Bidisha said

d(mental health) = a1 + d(marital status) + d(income) + e1

You realize that the presence of the constant in this equation  
implies that there is a trend in mental health status? Although many  
of us may feel that way, I wonder if you really mean that. Same issue  
arises for the second equation.

As to your question -- whether you can use parents' marital status  
(presumably still married v. divorced or widowed) as an instrument  
for the change in marital status observed in your sample... Surely  
you will observe some changes in your sample. For parents' status to  
be a valid instrument, it must be correlated with the endogenous  
measure ( d(mar.status)) and independently distributed of the error  
e1. The latter is reasonable, given that parental status is  
predetermined; but I wonder how well correlated it will be to the  
included measure. Look at the first stage regression results closely.

As you have written them, both of these equations appear exactly  
identified, so that you cannot carry out any overid tests.

Kit Baum, Boston College Economics
http://ideas.repec.org/e/pba1.html
An Introduction to Modern Econometrics Using Stata:
http://www.stata-press.com/books/imeus.html


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