st: Re: ivreg

[baum <baum@bc.edu>]

--On Saturday, September 7, 2002 2:33 -0400 Konstantin wrote:

> I need to estimate an instrumental variables regression. I have got two
> repressors, but I need the instrument only for one. How can I do it using
> the Stata?
>
> When I use ivreg command, for example,
>
> ivreg demand oil (demand_1=demand_2 oil_1)
>
> I need the instrument only for demand_1, not for oil. But the Stata
> interprets oil as an instrument for demand_1 too.
instrumental variables involves a matrix of regressors X and a matrix of 
instruments Z. All variables considered exogenous (or predetermined) are in 
Z. Some may also be in X. In your case

X = (oil demand_1 _cons)
Z = (oil demand_2 oil_1 _cons)

There is no one-to-one correspondence between regressors and instruments. 
All elements of Z are being used to generate the 'X-hat' matrix; that is, 
each column of X is regressed on the elements of Z. This is not a whim of 
Stata's design; it is inherent in the notion of an IV estimator.

Kit

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