st: re: do 2sls, ivreg, etc. check the rank condition for identification?

[Kit Baum <baum@bc.edu>]

In message
http://www.hsph.harvard.edu/cgi-bin/lwgate/STATALIST/archives/ 
statalist.0710/Author/article-299.html

I discussed the results of using my -checkreg3- routine, posted  
several days ago, and asserted that it properly classified certain  
simultaneous equations models as unidentified by the rank condition.  
David Drukker of StataCorp has kindly pointed out in private  
communications that the methodology I was applying was incorrect, and  
did not faithfully reflect (or even closely approximate) the logic  
that should be applied to diagnose a failure of the rank condition in  
a simultaneous system. I am grateful to David for taking the time to  
point out precisely how this calculation should be done, and  
apologize for my misstatements on the subject in response to his  
posting. With his help, I have rewritten -checkreg3- to faithfully  
reflect Jeff Wooldridge's logic (as cited in the help file) and  
produce the correct verdict for a simultaneous system. The corrected  
version of the routine is available from SSC or -adoupdate-.

A couple of additional points should be made along the lines of the  
original discussion of this issue as raised by Thomas Cornelissen.  
First, it is explicitly an issue of full-information or systems  
estimation. An equation flagged as failing the rank condition in a  
simultaneous systems estimation may well be estimable by limited- 
information (single-equation) methods such as -ivregress-. The proper  
test for the rank condition of an equation in a systems estimation  
depends not only on that equation's structure but on other equations  
in the system.
Second, although -reg3- will not flag a failure of the rank condition  
(for which -checkreg3- is useful), -reg3- with the -ireg3- option  
will fail to converge, signalling the problem. I was mistaken in  
asserting that this would not be the case; in several tests I have  
verified that David's statement on this aspect of the problem is  
absolutely correct.

Kit

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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