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Nathan said
I am running an IV regression in Stata 10 and am instrumenting 2
variables, each with 2 instruments.
More specifically, variable x_t is instrumented with r_t and (r_t)^2
and x_t-1 is instrumented with r_t-1 and (r_t-1)^2.
The code I am using to do this currently is:
ivregress 2sls y (x x_l = r r2 r_l r2_l), robust cluster(ccode)
2 denotes squared, _l is the lag.
Can anyone please advise if this is the correct code for what I am
attempting to do? Any help is appreciated.
It is not meaningful to talk about "this is being instrumented by
that". All included endogenous variables (x and x_l) are instrumented
by all exogenous variables, which in this case are the four in the
list. If you are confident that current r is exogenous, then this code
makes sense. You should do a test for overidentifying restrictions
after running the regression to ensure that the assumptions of
exogeneity are reasonable. I believe that after -ivregress- you can do
this with -estat-; -ivregress- does not automatically produce the test
as -ivreg2- does.
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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