Hi,
Thank you for these useful links. When I said Wooldrige mentions that we can ignore step 1 estimation I was actually referring to zeroth stage where I do probit of binary endogenous regressor on my instrument Z. Can we ignore insignificance of Z in this zeroth stage and simply focus on the validity of the predicted probablities (as these are my 'generated instrument') using output of ivreg2?
Thank you,
VB
--- On Thu, 7/1/10, Austin Nichols <[email protected]> wrote:
> From: Austin Nichols <[email protected]>
> Subject: Re: st: Question on Wooldridge's Procedure 18.1
> To: [email protected]
> Date: Thursday, 7 January, 2010, 8:03 PM
> vipul bhatt <[email protected]>
> :
> None of the above (or below, in this case). Use the
> predicted value
> from your -probit- as an excluded instrument in -ivreg2-
> (on SSC) and
> read the help file for -ivreg2- for tests of identification
> and overid
> tests. The part you can ignore is that your excluded
> instrument is
> generated, which is like the zeroth stage (with the first
> and second
> stages being done by -ivreg2- is a single step)--Wooldridge
> does not
> say you can ignore the first stage. See also
> http://www.stata-journal.com/article.html?article=st0136
> or slide 55 out of 95 in
> http://www.stata.com/meeting/germany09/nichols.pdf
> or e.g.
> http://www.stata.com/statalist/archive/2007-04/msg00415.html
>
> On Thu, Jan 7, 2010 at 8:52 AM, vipul bhatt <[email protected]>
> wrote:
> <snip>
> My question relates to the validity of the instrument Z.
> To argue for
> the validity of this instrument should I consider Z's
> statistical
> significance in the Probit model of Step 1?
> >
> > Or
> >
> > since step 1 is simply an extra step to obtain fitted
> probabilities to be used as instruments , we should only
> look at the statistical significance of the fitted values
> (X1_hat1) in the first stage of 2sls estimation in Step 2,
> i.e. whether or not b1=0 ?
> >
> > Wooldrige claims that we can ignore the step 1
> estimation properties and focus only on step 2. However he
> does not offer any explanation for the same. I will really
> appreciate any comments or suggestions you may have on this
> issue.
> >
> > Thanks,
> >
> > VB
>
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