> Andrea,
>
> I'm not an xtabond(2) expert, but ...
>
> One way to think about the Sargan stat in xtabond(2) is that it indicates
> that your instrumenting is OK from the point of satisfying the
> orthogonality conditions. That is, your instruments are "valid".
>
> It does *not* tell you directly about what regressors, if any, actually
> need any instrumenting in the first place.
>
> In the simple IV context, this second question can be addressed using a Wu-
> Hausman endogeneity test, or, equivalently in this context, a C or
> difference-in-Sargan test.
>
> In your xtabond(2) application, you could also do a difference-in-Sargan
> test "by hand". Say you have two specifications. One treats more
> variables as endogenous, and passes the Sargan test. You want to know if
> you can treat some of these variables as exogenous, and so you have a
> second specification that does this but is otherwise identical (same
> number of obs, same variables, etc - but note this can be tricky to get
> right in practice). You run this second spec and take the difference
> between its Sargan and the Sargan from the first spec. If the difference
> is "big" (i.e., reject the null if it's above a chi-sq critical value with
> #dofs=#vars being tested for exogeneity), you conclude that these
> variables are endogenous and needed instrumenting after all. If the
> difference is small, then you didn't need to instrument them and you can
> go with your second spec.
>
> Hope this helps.
>
> --Mark
>
> Quoting sistoand80 <[email protected]>:
>
> > Dear Mark,
> > i need some suggestions about the problem of over-identifying
> > restrictions. If I tape
> >
> > xtabond y X
> >
> > stata instruments Ld.y with its own lags (in level) from t-3 to t
> > and, if you think at X as a vector of exogenous variables, d.X. The
> > degree of freedom of sargan test is the number of instruments minus
> > 1 (the variable instrumented). If, in this case, the sargan reject
> > the null hypothesis, it would mean that X are not fully exogenous or
> > I would expect this result as the lagged dependent variable has been
> > instrumented only with its own lags?
> >
> > If I tape
> >
> > xtabond y, pre(X)
> >
> > stata would instrument Ld.y with lags of y and X in level (y from
> > t-3 and X from t-2). In this case, if Sargan test does not reject
> > the null, it means that X variables are not predetermined and it may
> > be considered as strictly exogenous covariates? And if the Sargan
> > rejectes the null, it means that these variables are endogenous?
> > (I've already red about the small power of Sargan test that tends to
> > overreject the null in presence of heteroskedasticity).
> > Thank You very much for your kindly reply,
> > best regards
> >
> > Andrea Sisto
> > University of Eastern Piedmont
> > ---------- Initial Header -----------
> >
> > >From : [email protected]
> > To : [email protected],"Katarina Lynch"
> > [email protected]
> > Cc :
> > Date : Fri, 29 Oct 2004 13:42:30 +0100 (BST)
> > Subject : Re: st: endogeneity and IV
> >
> > > 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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> > > Director, CERT
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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
> ________________________________________________________________
>
> DISCLAIMER:
>
> This e-mail and any files transmitted with it are confidential
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> whom it is addressed. If you are not the intended recipient
> you are prohibited from using any of the information contained
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> your possession and notify the sender by reply e-mail. Heriot
> Watt University does not accept liability or responsibility
> for changes made to this e-mail after it was sent, or for
> viruses transmitted through this e-mail. Opinions, comments,
> conclusions and other information in this e-mail that do not
> relate to the official business of Heriot Watt University are
> not endorsed by it.
> ________________________________________________________________
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