Thank you. These suggestions are very helpful. I appreciate your time
and effort in writing them.
On Mon, Feb 16, 2009 at 6:56 AM, Kit Baum <[email protected]> wrote:
> <>
> It would be much easier to figure out the identification status of these
> equations if you estimated them one at a time with ivregress or ivreg2.
> As far as I can see the C equation can be estimated with OLS, as there are
> no RHS endogenous variables. The P equation needs one instrument (for C) and
> you have both A and G1-G4 available, so it is identified.
>
> You are correct in noting that these products of exogenous and endogenous
> are not to be considered exogenous. Thus the OS equation is not identified,
> as you need three instruments and only have two (S2 and B). The D equation
> is hopelessly unidentified, as P, C, PC, PST, CST and PCST should all be
> considered endogenous, and the only excluded instruments are S2 and B.
>
> This problem might be dealt with by the method laid out by Wooldridge in
> Econometric Analysis of Cross Section and Panel Data, 2002, p.231, where he
> considers the case of a nonlinear function of an exogenous regressor (in
> this case the square of, for instance, C). You should be able to create
> additional instruments with powers and cross-products of the exogenous
> variables in the model -- not merely the excluded S2 and B, but also ST, S,
> A, and G1-G4 (although powers and cross-products of dummies are not of much
> use).
>
> I would try estimating just the D equation, explicitly indicating to
> ivregress or ivreg2 that the PC, PST, CST and PCST are endogenous, and using
> powers/cross products of _all_ exogenous vars as instruments, and see what
> you get. As a recent posting of mine points out, there is no need to employ
> a systems estimator here. It is probably possible to force reg3 to estimate
> the right equation, but recognize that if you let it figure out what is
> endogenous, it has created inconsistent estimates of ALL the equations by
> mistakenly treating the product terms as exogenous.
>
>
> 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 Feb 16, 2009, at 02:33 , Narasihman wrote:
>
>>
>> I was wondering if it is correct to test interactions and non-linear
>> effects with reg3. My system of equations is as follows. I am trying
>> to test for non-linear effects in three of the equations.
>>
>> reg3 (P ST C S S^2 B)
>> (C ST S S^2 )
>> (D A S G1-4 (categorical) P ST C P*C P*ST C*ST P*C*ST)
>> (OS ST D C P S A G1-4)
>>
>> I will appreciate any inputs. What worried me in this set up was that
>> while the endogenous variables were fine, the interaction terms (of
>> endogenous variables) are construed as exogenous variables. Also, ST
>> in my model is an exogenous variable that is not determined by the
>> model, I have some interaction terms based on ST with some endogenous
>> variables in the model.
>>
>> While I am getting some output, and it seems to be theoretically
>> meaningful, I am wondering if this is correct? I was looking up
>> examples on the stata manual and I guess it did not explicitly talk
>> about non-linear models in the manual. I would appreciate if anyone
>> has inputs to share on this. I am sorry if this question sounds naive.
>
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