Dear Mark,
I am concern that Marijke has endogenous DUMMIES
variables. Do you think that Procedure 18.1 (Wooldridge)
could help in this case? I know that this is not a treatment
problem, but it would be hard to get strong-instruments
in a linear framework.
Rodrigo.
----- Original Message -----
From: "Schaffer, Mark E" <[email protected]>
To: <[email protected]>
Sent: Friday, September 01, 2006 11:15 AM
Subject: st: RE: RE: RE: RE: Re: several endogenous dummies
Marijke,
> -----Original Message-----
> From: [email protected]
> [mailto:[email protected]] On Behalf Of
> Verpoorten, Marijke
> Sent: Friday, September 01, 2006 3:45 PM
> To: [email protected]
> Subject: st: RE: RE: RE: Re: several endogenous dummies
>
> Dear Mark,
>
> Thank you for pointing out the 3SLS, I wasn't aware of this procedure.
>
> Wrt the second issue, there is a misunderstanding. I'm not
> omitting any endogenous variable from the equation. I do not estimate
>
> ivreg2 y x1 (x2=z1)
> ivreg2 y x1 (x3=z1)
>
> Instead, I estimate
>
> Condivreg y x1 x2 (x3=z1 z2), ar lm
> Condivreg y x1 x3 (x2=z1 z3), ar lm
>
> with the set of instruments (z1 z2) and (z1 z3) a relevant
> subset of the full set of instruments (z1 z2 z3). I do so,
> because I have weak instruments and condivreg only allows for
> instrumenting one endogenous variable.
>
> Are these equations also misspecified?
Yes. It all comes down to the same problem. In the full specification,
ivreg2 y x1 (x2 x3=z1 z2)
but you have a weak instrument problem. You are suggesting that you
deal with this by reducing the number of endogenous variables. You can
try
ivreg2 y x1 (x3=z1 z2) [my suggestion]
or
ivreg2 y x1 x2 (x3=z1 z2) [your suggestion]
but neither is well specified. In my case, you have an endogeneity
problem via omitted variable bias; in yours, via the endogeneity of x2.
There's no direct escape, I'm afraid.
Cheers,
mark
Prof. Mark E. Schaffer
Director
Centre for Economic Reform and Transformation
Department of Economics
School of Management & Languages
Heriot-Watt University
Edinburgh EH14 4AS UK
44-131-451-3494 direct
44-131-451-3296 fax
http://www.sml.hw.ac.uk/cert
>
> Marijke
>
>
> -----Original Message-----
> From: [email protected]
> [mailto:[email protected]] On Behalf Of
> Schaffer, Mark E
> Sent: vrijdag 1 september 2006 16:30
> To: [email protected]
> Subject: st: RE: RE: Re: several endogenous dummies
>
> Marijke,
>
> Two reactions to your post:
>
> > -----Original Message-----
> > From: [email protected]
> > [mailto:[email protected]] On Behalf Of
> Verpoorten,
> > Marijke
> > Sent: Friday, September 01, 2006 1:28 PM
> > To: [email protected]
> > Subject: st: RE: Re: several endogenous dummies
> >
> > Hi Rodrigo,
> >
> > Thanks a lot for your answer. I'm sorry for my late reply; I was
> > traveling.
> >
> > To answer to your first three questions: (1)I have a set of
> > 17 instruments among which several cross-products and
> squares of the
> > exogenous RHS variables, (2) I use the same set of instruments for
> > each of the variables, though for some variables some
> instruments are
> > not relevant. I did not find a way to use different subsets of
> > instruments in the ivreg2 procedure,
>
> This is a misunderstanding about single-equation IV that
> comes up from time to time on Statalist. In single-equation
> IV, there is no way to limit sets instruments to apply to
> particular sets of endogenous regressors. This is basically
> by definition - you can do this, but then you are in the land
> of system estimation, 3SLS, FIML and the like. For example, in
>
> ivreg2 y x1 (x2 x3 = z1 z2 z3 z4)
>
> you might think that z1 and z2 instrument for x2, and z3 and
> z4 instrument for x3. But that is another way of saying that
> you want to specify 3 equations - y, x2, and x3 - and get
> efficiency gains from system estimation. No problem - use
> reg3 or whatever - but then it's not single-equation IV.
>
> > (3) I need to instrument five dummies and two count
> variables. These
> > variables give information on whether or not a household
> was hit by a
> > particular war-related shock, such as the death/illness of
> a household
> > member, imprisonment of a member, months taken refuge abroad etc. I
> > want to analyze which type of shock has a long term effect on the
> > household's welfare.
> >
> > Household welfare in 2002 = f(household welfare in 1990, household
> > characteristics in 1990, shocks occurring between 1990-2002)
> >
> > When I use the usual ivreg2 procedure to solve for the possible
> > endogeneity of the war-related shocks, I face the weak instrument
> > problem. Therefore I also use the condivreg procedure, for
> each shock
> > separately, while using the most relevant set of
> instruments for each
> > shock (those significant at 10% in the first stage of ivreg2).
> > However, I don't know whether it makes sense to instrument for each
> > shock separately.
>
> This is probably not legitimate, at least as you describe it.
> The problem is that you can't identify an equation in this
> kind of piece-by-piece manner. It's like the following
> example. You want to estimate
>
> ivreg2 y x1 (x2 x3=z1)
>
> but it's not identified because you don't have enough
> excluded instruments. You can't solve the problem by
> estimating the following two equations:
>
> ivreg2 y x1 (x2=z1)
>
> ivreg2 y x1 (x3=z1)
>
> The two equations are identified but misspecified, because in
> each case,
> z1 will be correlated with the error term via the omitted
> endogenous variable. You will have the same problem if you
> instrument for each of your endogeous regressors separately.
>
> HTH.
>
> --Mark
>
> Prof. Mark E. Schaffer
> Director
> Centre for Economic Reform and Transformation Department of
> Economics School of Management & Languages Heriot-Watt
> University Edinburgh EH14 4AS UK
> 44-131-451-3494 direct
> 44-131-451-3296 fax
> http://www.sml.hw.ac.uk/cert
>
>
> > I'm not sure I understand your suggestion about using the mlogit or
> > mprobit procedure. Is this to be used in the first stage? Is it
> > possible when the dummies may overlap, i.e. a household may face
> > several shocks.
> > How may the first stage information be used in the second stage? As
> > predicted probabilities?
> >
> > I also have to admit that I don't know what you mean with a full
> > characterization of the problem using ml. Could you put me on the
> > right track with a reference to a stata code, a textbook or an
> > article?
> >
> > Thank you very much,
> >
> > Marijke
> >
> >
> >
> >
> >
> > -----Original Message-----
> > From: [email protected]
> > [mailto:[email protected]] On Behalf Of
> Rodrigo A.
> > Alfaro
> > Sent: zaterdag 26 augustus 2006 6:22
> > To: [email protected]
> > Subject: st: Re: several endogenous dummies
> >
> > Marijke,
> >
> > I don't know the answer for your question but I can give you some
> > questions that you can explore. Note that the reference
> that you wrote
> > describes 1
> >
> > dummy variable, which sounds reasonable to do it by that procedure
> > instead of linear IV. Moreover, Wooldridge said that the
> estimation of
> > the parameters and the specification of the model in the
> first stage
> > do not affect the standard errors of 2SLS. Great!!!
> >
> > How many instruments are you going to use for these dummies?
> > Same set for each one? What number several means? Why not
> combine the
> > choices into a multinominal problem (solving by mlogit or mprobit)?
> > After you feel confortable with your entire model,
> equations for the
> > dummies plus your 2SLS one I think that it is not longer valid the
> > non-effect on std errors when you are trying to solve for several
> > endogenous dummies.
> >
> > Maybe a full characterization of the problem is the way to
> go. You can
> > describe all the process (endogenous dummies plus your continuous
> > variable)
> > as a maximum likelihood framework. You will pay with additional
> > assumption above the model but the reward will be a complete system
> > with "no-better"
> > standard errors.
> >
> > Rodrigo.
> >
> >
> >
> > ----- Original Message -----
> > From: "Verpoorten, Marijke" <[email protected]>
> > To: <[email protected]>;
> > <[email protected]>; <[email protected]>
> > Sent: Friday, August 25, 2006 3:38 PM
> > Subject: st: several endogenous dummies
> >
> >
> > Dear statlisters,
> >
> > I wonder whether, when having a continuous variable as a dependent
> > variable and several endogenous dummies, it`s better to use
> the usual
> > 2SLS (ivreg2), instead of instrumenting the dummies
> non-linearly (as
> > in Wooldridge, 2002, p623-625). Could you help me with this
> question?
> >
> > Kind regards,
> > Marijke
> >
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