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From |
"Kyle K. Hood" <kyle.hood@yale.edu> |

To |
statalist@hsphsun2.harvard.edu |

Subject |
Re: st: endogenous interaction term |

Date |
Sat, 25 Oct 2008 21:45:30 -0400 |

Kyle Gordon Gordon wrote:

Thanks again Mark! I think that is the way to go. In theory it is correct, although I have not found much literature on it. Gordon ----- Original Message ---- From: "Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk> To: statalist@hsphsun2.harvard.edu Sent: Wednesday, October 22, 2008 3:28:55 PM Subject: RE: st: endogenous interaction term Gordon,-----Original Message-----From: owner-statalist@hsphsun2.harvard.edu[mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf OfGordon GordonSent: 22 October 2008 17:46 To: statalist@hsphsun2.harvard.edu Subject: Re: st: endogenous interaction term Thanks Mark for the reference links! They are very helpful.My problem is that in the equation I am interested in, theendogenous binary variable X1 also interacts with anothervariable X2, and I am trying to correct the endogeneity ofthe interaction term.One solution is to have the instrument of X1 interacting withX2 as additional instruments, and then apply a standardivreg2 approach. However I haven't been able to find muchliterature on this issue.I don't think that will work. If X1 is endogenous, then an interaction with X1 will probably be endogenous too - you'd need to work hard to convince a skeptic otherwise. You should probably be thinking instead about instruments for X1 and (X1*X2), i.e., you need at least two instruments. Interactions of instruments might be appropriate, but it depends completely on your particular application. Hope this helps. Cheers, Mark Prof. Mark Schaffer Director, CERT Department of Economics School of Management & Languages Heriot-Watt University Edinburgh EH14 4AS tel +44-131-451-3494 / fax +44-131-451-3296 http://ideas.repec.org/e/psc51.htmlCould you shed light?Thanks, Gordon ----- Original Message ---- From: "Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk> To: statalist@hsphsun2.harvard.edu Sent: Wednesday, October 22, 2008 7:43:30 AM Subject: RE: st: endogenous interaction term Gordon,-----Original Message-----From: owner-statalist@hsphsun2.harvard.edu[mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf OfGordon GordonSent: Tuesday, October 21, 2008 7:27 PM To: statalist@hsphsun2.harvard.edu Subject: Re: st: endogenous interaction term Thanks a lot Austin!However in my case, the endogenous variable X1 is a dummyvariable, and my first stage regression is a probit model,then I plug the Inverse Mills Ratio to the second stageregression. It is not clear to me how to use the typical IVapproach in this setting. Could you advice?I think you're on the wrong track here. You should probablybe thinking along the lines of Stata's built-in -treatreg-,the add-ins -cdsimeq- or -cmp-, or alternative proceduressuch as the one that Jeff Wooldridge describes in his 2002 book.Have a look at some past discussions on the list and thethreads and references therein:http://www.stata.com/statalist/archive/2004-09/msg00352.html http://www.stata.com/statalist/archive/2007-04/msg00945.html HTH. Cheers, MarkGordon ----- Original Message ---- From: Austin Nichols <austinnichols@gmail.com> To: statalist@hsphsun2.harvard.edu Sent: Monday, October 20, 2008 3:59:08 PM Subject: Re: st: endogenous interaction term Gordon <gordon.stat@yahoo.com>: See e.g. http://www.stata.com/statalist/archive/2004-08/msg00780.htmlWith multiple instruments and multiple endog vars, you maywant to useLIML so -ivreg2- will give you a little more room to passthe weak IDtests of Stock and Yogo (see the help file for -ivreg2-, onSSC) sinceLIML is slightly more robust to multiple weak instruments.On Mon, Oct 20, 2008 at 1:06 PM, Gordon Gordon<gordon.stat@yahoo.com> wrote:Hi there, I would like to estimate the following equation: Y = b0+ b1*X1 +b2* X2 + b3*X1*X2X1 is a dummy variable and endogenous, X2 is exogenous andnormalized.If there are no interaction term, I can apply either IV orHeckman two stage to correct the endogeneity of X1.However with the interaction term of X1*X2, I do not knowhow to deal with it.Any advice is much appreciated! Gordon* * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata..com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/* * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/-- Heriot-Watt University is a Scottish charity registered under charity number SC000278. * * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/* * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/

* * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/

**References**:**Re: st: endogenous interaction term***From:*Gordon Gordon <gordon.stat@yahoo.com>

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