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From |
Jessie C <jessiecoh@gmail.com> |

To |
statalist@hsphsun2.harvard.edu |

Subject |
RE: st: Interaction Variables as Instruments |

Date |
Sat, 21 Jan 2012 13:46:39 -0500 |

I am sorry but my notation was not fully explained. The letters a, b, and c are coefficients as are k, l, and m. I hope the following explanation clarifies: We can think of y as wages and x as schooling for ease of exposition. Schooling is not exogenous as we know. To instrument for schooling, there is a policy that affected female schooling relative to male schooling. And it affected some women more than other women depending on age and geography. Let us call the gender, z_1. Let us call the policy measure, z_2. So the first stage would be: x = a*z_1 + b*z_2 + c*z_1*z_2 + e where x is schooling, z_1 is a binary for gender, z_2 is the extent to which your schooling is affected by the policy, and c is the parameter that capture how much female schooling would be affected relative to male schooling as a result of the policy. The goal is then to estimate wages as a function of schooling, taking advantage of this policy that affects female schooling relatively more than male schooling for some women. y = k*x + u is a minimum that I need. z_1 should be a regressor and not an instrument, right? Are both z_2 and z_1*z_2 the instruments? Do they instrument for only x? Do I need to include x*z_1 as an regressor too? * * 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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