st: RE: using squared terms in IVreg

["Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk>]

Josh,

> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu 
> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Josh Freely
> Sent: Tuesday, September 19, 2006 2:05 PM
> To: statalist@hsphsun2.harvard.edu
> Subject: st: using squared terms in IVreg
> 
> Hello,
> I am using ivreg to perform a 2 stage least squares analysis. 
>  It turns out that the stage 1 outcome has a curvilinear 
> relationship with the stage 2 outcome.  Does anyone know if 
> it is appropriate to include a square of the stage 1 outcome 
> in the stage 2 model?  Does Stata have another method for 
> doing 2sls that might better account for this curvilinear 
> relationship?

This comes up from time to time on Statalist:

http://www.stata.com/statalist/archive/2003-11/msg00795.html
http://www.stata.com/statalist/archive/2005-05/msg00158.html

The short answer to your first question is "no", it isn't appropriate.
For alternatives, see the references cited in the previous posts.

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
 

> Thank you,
> Josh
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