st: instrumenting interaction and Hansen J statistic

["Bernini, Michele" <Michele.Bernini@unitn.it>]

Dear statalister,

I am using using the command ivreg2 to estimate by 2sls this kind of model:

y= A + B + ( A*X   B*X   X =  A*Z1   A*Z_2    B*Z_1   B*Z_2    Z_1   Z_2) +controls

where X is the endogenous variable that I want to interact with the exogenous regressors A and B, and Z_1 and Z_2 are my two instruments. I had a look on the internet and it seems legitimate to instrument interaction terms this way. However the Hansen statistic is not convincing. When I include all the 6 instruments it gives me a p-value of 0.39, however when I use only 4 of them (in different combinations) the p value gets as smaller than 0.07. First stage statistics look rather good (high F values and K-P stat).
I was wondering whether the rejection to fail the exogeneity of the instruments could be caused by high collinearity among them and if someone has a better strategy to instrument the interaction terms.

Thanks a lot,

Michele





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