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st: Re: How to correct for generated regressor bias in an Arellano-Bond model


From   "Rodrigo A. Alfaro" <[email protected]>
To   <[email protected]>
Subject   st: Re: How to correct for generated regressor bias in an Arellano-Bond model
Date   Sun, 3 Jun 2007 10:29:33 -0400

I think that appendix of NBER Working Paper #6652 has a procedure that you can use. R


----- Original Message ----- From: "Haardt, David A M" <[email protected]>
To: <[email protected]>
Sent: Sunday, June 03, 2007 6:23 AM
Subject: st: How to correct for generated regressor bias in an Arellano-Bond model



Hello everybody,

I have the following problem:

In a first-stage OLS regression, I predict labour income. I then create a
shock variable using predicted labour income and other, non-predicted,
variables (such as actual labour income).

This shock variable is then included as an explanatory variable in the
second stage, a difference GMM estimator which I implement using the
-xtabond- command.

How could I correct for generated regressor bias in this context? Robust
standard errors will not be sufficient, I assume. The fact that I do not
just include the predicted variable, but rather a variable which has been
generating using the predicted variable, is a further complication.

Best wishes,

David

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