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st: Re: opinion on 2sls vs 3sls
One practical consideration, having nothing to do with the
econometric techniques but with their implementation in Stata, is
that -reg3- is only capable of handling i.i.d. errors. 2SLS
techniques, such as -ivreg2- or -ivregress- in Stata 10, can handle
violations of i.i.d., including heteroskedasicity, serial correlation
and cluster-robust VCEs. On that basis (and the irrelevance of i.i.d.
errors to most empirical work) I would much rather use limited-
information techniques (2SLS, LIML, or IV-GMM) than 3SLS.
Kit Baum, Boston College Economics and DIW Berlin
http://ideas.repec.org/e/pba1.html
An Introduction to Modern Econometrics Using Stata:
http://www.stata-press.com/books/imeus.html
On Aug 14, 2007, at 2:33 AM, statalist-digest wrote:
If you suspect the contemporaneous correlation of
disturbances across your
equations go for 3SLS. Furthermore, assuming that your
system is correctly
specified, 3SLS is more efficient (or at least as
efficient) than 2SLS.
I personally prefer 3SLS. You can also try to estimate
both and to check
the efficiency of your estimates. However, be careful
with your model
specification. If one of the equations is
misspecified, 3SLS may be
inferior to 2SLS.
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