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st: re: 3sls and fixed effects

From   Christopher Baum <[email protected]>
To   <[email protected]>
Subject   st: re: 3sls and fixed effects
Date   Sat, 16 Oct 2010 13:53:21 -0400

Biljana said

I have some lagged values in regression - could that be the problem?

This is what I have & get:

. xi: reg3 (DeltaDebt CashFlow dQ size DeltaCashHold debt_lag1 i.gvkey_n
i.fyear) (DeltaCashHold CashFlow dQ size DeltaDebt cashhold_lag2
i.gvkey_n i.fyear), endog(DeltaDebt DeltaCashHold)

i.gvkey_n         _Igvkey_n_1017-103307(naturally coded; _Igvkey_n_1017
i.fyear           _Ifyear_1971-2001   (naturally coded; _Ifyear_1971
1st stage failure.
    Equation:  DeltaDebt CashFlow dQ size debt_lag1 _Igvkey_n_1056 
         _Igvkey_n_1058 _Igvkey_n_1093 _Igvkey_n_1124 _Igvkey_n_1234 
         _Igvkey_n_1248 _Igvkey_n_1283 _Igvkey_n_1284 _Igvkey_n_1327 
         _Igvkey_n_1350 _I

Stata doesn't know that those are lagged variables, so that can't be a problem. I think what you may be running into is a constraint arising because of the number of regressors. How many values of gvkey_n are there in the estimation sample? (You can use -levelsof- to get a list, and an extended macro function to count the number). If you are estimating two equations, each with a full set of firm and time dummies, the covariance matrix is of the order 2*((G-1) + (T-1)) where G=number of firms and T=number of periods. if the number of firms is large, you may be running up against a matsize constraint (I've never seen the error message '1st stage failure').  

As you do not have a dynamic system, you could manually demean each of the variables via the within transformation and run the regression on the within-transformed variables. I believe Ben Jann's -center- on SSC will do the centering transformation under by-group control (by gvkey_n), which would be cleaner than using egen, mean() with by.


Kit Baum   |   Boston College Economics & DIW Berlin   |
                              An Introduction to Stata Programming  |
   An Introduction to Modern Econometrics Using Stata  |

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