# Re: st: re: How to correct standard errors of a 2sls performed by

 From John Antonakis To statalist@hsphsun2.harvard.edu Subject Re: st: re: How to correct standard errors of a 2sls performed by Date Sat, 06 Feb 2010 16:06:43 +0100

```Hi Kit:

```
One difference is that x1 is entirely dependent on endogenous variables; so my naive question here is: which predicted values of x1 and x2 are included in Eq. 2 and 3 respectively (also knowing that x1 and x2 predict each other and that x1 has no unique instruments that predict it directly)?
```
Thanks,
John.

____________________________________________________

```
Prof. John Antonakis, Associate Dean Faculty of Business and Economics
```Department of Organizational Behavior
University of Lausanne
Internef #618
CH-1015 Lausanne-Dorigny
Switzerland

Tel ++41 (0)21 692-3438
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____________________________________________________

On 06.02.2010 14:47, Kit Baum wrote:
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John writes how does one do single-equation estimation with in the context of a non-recursive system. Again, here is the example:
```
Eq1: y = x1 + x2 + z
Eq2: x1 = m1 + m2 + x2 + z
Eq3: x2 = n1 + n2 + x1 + z
Eq4: m1 = q1 + q2 + z
Eq5: m2 = p1 + p2 + z

```
The predicted value of x2 enters in Eq. 2; however, the predicted value of x1 enters in Eq. 3. So, how does one go about estimating this non-recursive model using a single-equation estimator?
```

In the textbook example used to motivate 2SLS, we write down a demand equation and a supply equation, both of which contain Q and P along with demand shifters and supply shifters. How is that different from eq2-3?

Q = b0 + b1 P + b2 Y + e
P = g0 + g1 Q + g2 R + g3 T + v

with Y=income, R=rainfall, T=temperature.

Those who developed IV / 2SLS were able to consistently estimate these equations by limited-information (single-equation)  before systems estimators were devised. For that matter LIML could be used to estimate these equations as well (in either -ivregress- or -ivreg2- from SSC).

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

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