I have learned a lot from reading Statlist -- thanks to everyone who
writes and answers questions. Now I have a question of my own, and I
haven't been able to find anything in the archives so far.
I am trying to figure out just what newey2 does with instruments.
When I specify
. newey2 y (x1 =z1) x2, lag(1) first
STATA gives me just the first-stage results I would expect -- in fact,
I can replicate these first stage results with
. reg x1 z1 x2
However, if I try taking the predicted values from this first stage:
. predict x1hat
and "manually" running the IV results:
. newey y x1hat x2, lag(1)
I get the right coefficients (obviously), but the wrong standard
errors. I surmise that newey2 must be doing something special with
the part of the covariance matrix associated with the first-stage
fitted values. I have tried to read through the newey2 ado file, but
can't see exactly what's going on.
I'd appreciate any thoughts from anyone who understands newey2 better than I.
Thanks,
Todd
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