Sorry my last email was incomplete...
Consider the following:
regress Y2 Z1 Z2 Z3 Z4 X1 X2
*****Z1-Z4 are all significant at the 1% level.
predict y2hat
predict res1, resid
regress Y1 y2hat X1 X2 res1
****Both y2hat and res1 come out significant at the 1% level. So y2 is
indeed endogenous.
However when I do
regress Y1 Z1 Z2 Z3 Z4 X1 X2 res1
then only Z1 is weakly significant and the rest are not. Why is this the
case? When the predicted value of y2 which is a function of Z1-Z4 comes out
significant then why not Z1-Z4 themselves?
Thanks for taking the time to consider this question.
