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From |
Andrew Barnes <abarnes2@gmail.com> |

To |
statalist@hsphsun2.harvard.edu |

Subject |
st: programming a weighted two stage least squares model |

Date |
Fri, 1 Apr 2011 08:38:43 -0700 |

Hi folks, I programmed up this weighted two stage least squares (W2SLS) but I'm not sure if it's correct. Also, I don't know if the canned post estimation commands for ivregress (e.g., estat firststage, estat endog, estat overid) will be valid for a W2SLS model. Any thoughts or comments are appreciated. Cheers, Andrew I have a model y2=y1 + x + e where y1 is endogenous (as is y2 obviously), x is some exogenous determinant of y2, and the error terms (e) are heteroscedastic. In the single equation model, I'm using weighted least squares a la Wooldridge reg y2 y1 x predict double y2hat, xb replace y2hat=0.999 if y2hat>=1 replace y2hat=0.001 if y2hat<=0 gen WTy2hat=1/(y2hat*(1-y2hat)) reg y2 y1 x [w=WTy2hat] Now, to resolve the endogeneity, I want to run a weighted 2SLS model using instruments z (so the reduced form first stage is y1=x+z+n, where n is an error term) I have done the following: ***W2SLS BY HAND ***weighted first stage reg y1 x z predict double y1hat, xb replace y1hat=0.999 if y1hat>=1 replace y1hat=0.001 if y1hat<=0 drop y1hat gen WTy1hat=1/(y1hat*(1-y1hat)) reg y1 x z [w=WTy1hat] **get predicted y1hat from weighted first stage predict double y1hat, xb ***weighted second stage reg y2 y1hat x predict double y2hat, xb replace y2hat=0.999 if y2hat>=1 replace y2hat=0.001 if y2hat<=0 gen WTy2hat=1/(y2hat*(1-y2hat)) reg y2 y1hat x [w=WTy2hat] ***calculate correct VCE *(from http://www.stata.com/statalist/archive/2010-02/msg00307.html) scalar rmsebyhand=e(rmse) *wrong VCE mat vbyhand=e(V) scalar dfk=e(df_r) **correct resids gen double eps2=(y2- _b[y1hat]*y1 - _b[x]*x - _b[_cons])^2 su eps2 ***correct rmse scalar rmsecorr=sqrt(r(sum)/dfk) ***correct VCE mat vcorr=(rmsecorr/rmsebyhand)^2*vbyhand mat li vcorr ****display b vector and correct standard errors qui reg y2 y1hat x [w=WTy2hat] matrix b=e(b) matrix list b matrix colnames vcorr= y1hat x _cons matrix rownames vcorr = y1hat x _cons ereturn post b vcorr ereturn display * * 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/

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