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RE: st: hausman's test with xtivreg2
Erasmo,
> -----Original Message-----
> From: [email protected]
> [mailto:[email protected]] On Behalf Of
> Erasmo Giambona
> Sent: Friday, April 20, 2007 2:42 PM
> To: [email protected]
> Subject: Re: st: hausman's test with xtivreg2
>
> Thanks Mark and Kit. This was really helpful. I had thought
> that paper could explain why I get FE-IV estimates for the
> "endogenous" variables that are quite different from FE-OLS,
> but the endog option shows no signs of endogeneity.
Since the test statistic reported by the -endog- option can be
interpreted as a "vector of contrasts" test, it is telling you that the
coeffs may look "quite different", but statistically speaking, they
aren't.
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
> Best regards,
> Erasmo
>
> On 4/20/07, Kit Baum <[email protected]> wrote:
> > Mark said
> >
> > >
> > > "One can formalize this evidence against the exogeneity of >
> > managerial ownership by testing for a correlation between
> the > fixed
> > effect and managerial > ownership. We could use a Hausman (1978)
> > test, but this test > would tend to > over-reject the null
> > hypothesis of zero correlation because > it would tend to
> reject >
> > if any of the explanatory variables were correlated with
> the > fixed
> > effect.
> > > To reduce this Type I error, we construct a more precise >
> > &conditional moment'
> > > test, which is in the spirit of a Hausman test, but tends to >
> > reject only if > managerial ownership is the source of the
> > specification error > (Greene, 1997, p. 534; Newey, 1985)."
> >
> > This is very curious. Do we have the context right?
> >
> > If I'm not mistaken, the above makes sense if the authors
> are talking
> > about the application of a Hausman test to an equation
> without fixed
> > effects. In that case, omission of the fixed effects would
> generate
> > omitted variable bias if the explanatory variables are
> correlated with
> > the omitted "fixed effects" since they are now in the error term.
> >
> > But say we apply the Hausman test to a fixed effects
> estimation done
> > as a LSDV (least squares dummy variable) estimation. Then
> I can't see
> > what the problem would be. There's nothing wrong with explanatory
> > variables being correlated with each other, and the LSDVs that are
> > included as regressors are just that.
> >
> >
> > I think what is being confused here is that one could do
> two Hausman
> > tests in a FE context: one for FE vs RE (which does question the
> > correlation between regressor and fixed effect) and another, in the
> > pure FE context, for endogeneity of regressors. That is,
> the test of
> > OLS vs IV for the LSDV model. The former Hausman test would look at
> > the correlation between regressor (mangerial ownership) and
> the firm-
> > specific effect, but if done purely in a OLS/LSDV
> framework, could be
> > weakened if OLS is inappropriate in the first place. But I
> don't see
> > how that critique would apply if the test was done in a IV
> framework,
> > allowing for endogeneity of regressors.
> >
> >
> >
> > Kit Baum, Boston College Economics
> > http://ideas.repec.org/e/pba1.html
> > An Introduction to Modern Econometrics Using Stata:
> > http://www.stata-press.com/books/imeus.html
> >
> >
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