st: re: 2-SLS with no covariates in 1st stage

[Kit Baum <baum@bc.edu>]

Eva said

ivreg in STATA fits a linear regression model using instrumental  
variables (or
two-stage least squares) of depvar on varlist1 and varlist2, using  
varlist_iv
(along with varlist1) as instruments for varlist2.Is there any option  
in ivreg
command for not using varlist1, along with varlist_iv, as instruments  
(I want
to keep out from the first-stage of the 2-SLS the varlist1)?


No. This is a FAQ (see the Statalist Archives, Mark Schaffer's  
postings in particular). The instrumental variables estimator  
requires that you include all exogenous variables in the Z matrix.  
The elements of varlist1 are serving as their own instruments in the  
'first stage' regression, and excluding them would be equivalent to  
saying that they are orthogonal to the elements of varlist2. As you  
can readily verify that the correlations between varlist1 and  
varlist2 are nonzero in all but very special cases, the elements of  
varlist1 must be included in the 'first stage' regression to ensure  
consistency.


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


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