RE: st: how to perform an endogeneity test involving "streg"

[Cameron McIntosh <cnm100@hotmail.com>]

Yanling,
I think you mean xtreg.

I think that this request requires some thought. From a purely statistical point of view, there are the Hausman and related tests:

Hausman, J.A. (1983). Specification and estimation of simultaneous equation models. In Z. Griliches & Intriligator, M.D. (Ed.), Handbook  of  Econometrics (vol I, pp. 391-448). North-Holland Publishing Company.http://pria.uran.ru/ebooks/Unsorted/07%20Hausman%20-%20Specification%20and%20Estimation%20of%20Simultaneous%20Equation%20Models.pdf

Jeong, J., & Yoon, B.H. (2010). The Effect of Pseudo-Exogenous Instrumental Variables on Hausman Test. Communications in Statistics - Simulation and Computation, 39(2), 315-321. 
Dhrymes, P.J. (August 2003). Tests for Endogeneity and Instrument Suitability. Columbia University, Department of Economics Discussion Paper Series, Paper No. 0203-21. New York, NY: Department of Economics, Columbia University.

Chmelarova, V. (2007). The Hausman test, and some alternatives, with heteroskedastic data (Ph.D. Dissertation).  Lousiana State University and Agricultural and Mechanical College.http://etd.lsu.edu/docs/available/etd-01242007-165928/unrestricted/Chmelarova_dis.pdf

Antonakis, J., Bendahan, S., Jacquart, P., & Lalive, R. (2010). On making causal claims: A review and recommendations. The Leadership Quarterly, 21(6), 1086-1120. http://www.hec.unil.ch/jantonakis/Causal_Claims.pdf

Baum, C.F., Schaffer, M.E., & Stillman, S. (2002). IVENDOG: Stata module to calculate Durbin-Wu-Hausman endogeneity test after ivreg.Statistical Software Components S494401, Boston College Department of Economics (revised 29 May 2007).http://ideas.repec.org/c/boc/bocode/s429401.html
Schaffer, M.E. (2005). IXTIVREG2: Stata module to perform extended IV/2SLS, GMM and AC/HAC, LIML and k-class regression for panel data models. Statistical Software Components S456501, Boston College Department of Economics (revised 28 Aug 2010).http://ideas.repec.org/c/boc/bocode/s456501.html

But contrary to popular belief, that still doesn't directly certify whether a given variable really is an instrument for a purported causal relation. One must also use graphical criteria:
Brito, C., & Pearl, J. (2002). Generalized instrumental variables. In A. Darwiche and N Friedman (Eds.), Uncertainty in Artificial Intelligence: Proceedings of the Eighteenth Conference (pp. 85-93). San Francisco, CA:  Morgan Kaufmann.http://ftp.cs.ucla.edu/pub/stat_ser/r370.pdf
Pearl, J. (August 3, 2011). The Causal Foundations of Structural Equation Modeling. Technical Report R-370, UCLA Computer Science Department. Chapter for R. H. Hoyle (Ed.), Handbook of Structural Equation Modeling. New York: Guilford Press.http://ftp.cs.ucla.edu/pub/stat_ser/r370.pdf
Kyono, T.M. (2010). Commentator: A Front-End User-Interface Module for Graphical and Structural Equation Modeling. Technical Report R-364. Los Angeles, CA: Department of Computer Science, UCLA. Los Angeles, CA. http://ftp.cs.ucla.edu/pub/stat_ser/r364.pdf
Chan, H., & Kuroki, M. (2010). Using Descendants as Instrumental Variables for the Identification of Direct Causal Effects in Linear SEMs. In Proceedings of the 13th International Conference on Artificial Intelligence and Statistics (AISTATS) 2010, Chia Laguna Resort, Sardinia, Italy. Journal of Machine Learning Research, Workshop &Conference Proceedings, 9, 73-80. http://jmlr.csail.mit.edu/proceedings/papers/v9/chan10a/chan10a.pdf
Stanghellini, E. (2004). Instrumental variables in Gaussian directed acyclic graph models with an unobserved confounder. Environmetrics, 15(5), 463–469.
He/she couldn't argue with you after you verify your IVs through these channels. Hope this helps,
Cam
Date: Wed, 19 Oct 2011 14:23:38 -0400
From: yanling_wang@carleton.ca
To: statalist@hsphsun2.harvard.edu
Subject: st: how to perform an endogeneity test involving "streg"

Hello listers:I was requested by one of the referees for my article to perform an endogeneity test after "streg" to show whether the IVs are valid. Is there a package in State to get it done?Thank you.Yanling

-------------------------------

Yanling Wang

Associate Professor

School of International Affairs

Carleton University

http://www.carleton.ca/~ywang1
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