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st: problem with generated regressands and WLS

From   Arka Roy Chaudhuri <[email protected]>
To   [email protected]
Subject   st: problem with generated regressands and WLS
Date   Tue, 12 Oct 2010 17:48:25 -0700


  I have a two-stage estimation strategy. In the first stage I
estimate a no of parameters β1.....βN. I use these parameters as my
dependent variable/regessand in the second stage equation.Now since my
regressands are generated I need to use the first stage
variance-covariance matrix of my variables as weights in the second
stage.To elaborate here is my first stage:

 y= α + β1x1+ β2x2 +................. +βnxn+ ρ1z1 +  ρ2z2 + u

Now I want to use the β's from the first stage as my second stage
regressands. My second stage looks like:

 β= γ+ δx + ε

Here in the second stage as my β's are estimates from the first stage
I believe I should use the variance-covariance matrix of the β's as
the weighing matrix in the second stage.
Could somebody please tell me if I am doing this correctly and how to
implement it in Stata?Thanks


Arka Roy Chaudhuri
PhD Student
University of British Columbia

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