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st: Too high R2, when interacting endogenous regressor in -ivreg2-?


From   Jen Zhen <jenzhen99@gmail.com>
To   statalist@hsphsun2.harvard.edu
Subject   st: Too high R2, when interacting endogenous regressor in -ivreg2-?
Date   Tue, 10 Dec 2013 17:36:20 +0100

Dear Statalist members,

after running an -ivreg2- estimation, I wanted to test formally
whether results differ between 2 subsamples defined by the exogenous
dummy "ex". I have followed the procedure explained by Kit Baum in the
earlier post by Jana von Stein, Kit Baum and Vassilis Monastiriotis
http://www.stata.com/statalist/archive/2012-05/msg01165.html
and estimated the following equation (where I've added a long list of
further exogenous controls, excontrols):

 ivreg2 y ex excontrols (en en_ex = z z_ex)

This largely seems to work. I obtain two first stage equation outputs
for the outcomes en and en_ex respectively, each with both z and z_ex
amongst the set of regressors, plus ex and excontrols.

What troubles me though is that for the second first-stage regression,
that for en_ex, I get an R2 of 0.998. Despite having a long list of
controls and good data quality, that makes me wonder whether something
is wrong here or how I could explain this high R2?

Thank you so much and kind regards,
JZ
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