Dimitryiy,
> -----Original Message-----
> From: [email protected]
> [mailto:[email protected]] On Behalf Of
> Dimitriy V. Masterov
> Sent: 13 February 2006 05:56
> To: [email protected]
> Subject: st: ivreg2 with id matrix in stage 1
>
> Hello,
>
> I am trying to use ivreg2 to perform efficient GMM. I would like for
> ivreg2 to use the identity matrix as the weighting matrix in
> the first step instead of inv(Z'Z). I realize that any
> positive definite matrix will yield consistent estimates, but
> I was hoping that there would be an undocumented option of
> some sort. I'd like to see how sensitive my results are to
> different weighting schemes.
Indeed there is an undocumented option for this. If your weighting
matrix is called, say, imat, then
ivreg2 ..., wmatrix(imat)
will do at least some of what you want. The number of rows/columns of
imat will be the total number of instruments, i.e., all included
exogenous regressors and excluded instruments, including the constant.
A word of warning, though - this option was designed to be used
internally by ivreg2 as part of the 2nd step of 2-step efficient GMM.
As such, not all the output may be correct; for example, the fiddly
degrees-of-freedom adjustments may not be handled correctly. Thus I
just compared the results of ivreg2 if you supply inv(Z'Z) by hand vs.
the results of ivreg2 doing IV on its own, and whereas the coefficients
and SEs are correct, the Sargan statistic is wrong. The reason is that,
although the standard IV results are invariant to scaling the weighting
matrix, the Sargan statistic is not. If, however, you use, not
inv(Z'Z), but inv(Z'Z)N/sigma_sq_hat), then you should the correct
Sargan stat as well. Perhaps the easiest way to do this is to run
ivreg2 twice, once with wmatrix(imat) as the option, and the second time
with wmatrix(imat*e(N)/e(rmse)^2) as the option. But more generally -
be careful!
Hope this helps.
Cheers,
Mark
>
> Thank you in advance for your help.
>
> Dimitriy Masterov
>
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