> Katarina,
>
> Quoting Katarina Lynch <[email protected]>:
>
> > Dear Statalist,
> >
> > I am trying to inroduce instrumental variables to fix the
> > endogeneity
> > problem caused by fixed and random effects regressions. How can I
> > determine
> > which independent variables are endogenous, i.e. correlated with the
> > error
> > term? I simply gave the command "pw resid var1 var2 var3 var4" and
> > it gave a
> > matrix where one of the variables showed a correlation with resid.
>
> That's not how you test for endogeneity. You want use either a Sargan-
> Hansen statistic or the Hausman approach (these are sometimes equivalent,
> depending on the application).
>
> > Does it
> > mean that this variable is endogenous or is there any other way? The
> > reason
> > I am asking this, perhaps, strange question is, in STATA7, the
> > xtabond
> > command requires predetermined variables in the sense that E(x,
> > error) is
> > nonzero.
>
> The Sargan(-Hansen) stat at the bottom of the xtabond output is a test of
> your orthogonality conditions, i.e., that your exogenous independent
> variables and instruments are indeed exogenous.
>
> Hope this helps.
>
> --Mark
>
> >
> > Thank you,
> >
> > Katarina
> >
> > _________________________________________________________________
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> > *
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> >
>
>
>
> Prof. Mark Schaffer
> Director, CERT
> Department of Economics
> School of Management & Languages
> Heriot-Watt University, Edinburgh EH14 4AS
> tel +44-131-451-3494 / fax +44-131-451-3008
> email: [email protected]
> web: http://www.sml.hw.ac.uk/ecomes
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