RE: st: RE: Tricky IV-Problem and how do I correct Standard Errors in the Second Stage?

["Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk>]

Benjamin,

> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu 
> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of 
> Benjamin Niug
> Sent: 31 May 2012 10:57
> To: statalist@hsphsun2.harvard.edu
> Subject: Re: st: RE: Tricky IV-Problem and how do I correct 
> Standard Errors in the Second Stage?
> 
> Hi Mark & statausers,
> 
> Thanks for the answer - I see the point. Lets assume that I 
> would not account for fixed effects. Hence, I would have 
> variation. How would I be able to solve this problem?

I think I answered this question already - the random effects estimator and the between estimator are both options.  See -xtivreg-.

--Mark

> How 
> would I correct the standard errors.
> 
> Best Benjamin
> 
> 
> 2012/5/29 Schaffer, Mark E <M.E.Schaffer@hw.ac.uk>:
> > Benjamin,
> >
> >> -----Original Message-----
> >> From: owner-statalist@hsphsun2.harvard.edu
> >> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of 
> Benjamin 
> >> Niug
> >> Sent: 29 May 2012 10:37
> >> To: statalist@hsphsun2.harvard.edu
> >> Subject: st: Tricky IV-Problem and how do I correct 
> Standard Errors 
> >> in the Second Stage?
> >>
> >> Hi Stata-users,
> >>
> >> Here is background information:
> >>
> >> - Dataset: I have a T=2 panel dataset with approximately 5000 
> >> observations.
> >>
> >> - Sampling: Observations are sampled across different 
> localities (e.g.
> >> 20 observation per locality).
> >>
> >> - Estimation Goal: I want to run a IV-regression accounting for FE 
> >> and clustering at the individual level.
> >>
> >> - I am using Stata 11.
> >>
> >> Here comes the issue:
> >>
> >> The explanatory variable that is endogenous (to be
> >> instrumented) takes on the same values for observations in 
> the same 
> >> locality. Hence, I want to run the first stage regression using 
> >> averages of exogenous variables per locality as exogenous 
> >> instrumental variables. Hence, there would some further level of 
> >> aggregation in the first stage (with 5000/20=250 observations).
> >>
> >> Questions:
> >> 1. Is there a Stata command that can estimate this somewhat tricky 
> >> Two-Stage Regression? (no Stata command that I am aware of).
> >
> > No, but it's not StataCorp's fault - it can't be done as specified.
> >
> > The problem is that the endogenous variable to be 
> instrumented doesn't 
> > vary by locality.  Because it's locality-invariant, it will be 
> > absorbed by the fixed effects.  There will be nothing left to 
> > instrument.  Put another way, the FE estimator relies solely on 
> > within-locality variation.  There is no such variation in 
> your endogenous regressor.
> >
> > Aside from finding a different explanatory variable that does have 
> > some within-locality variation, your only option is to use an 
> > estimator that exploits between-locality variation.  The between 
> > estimator does this, as does the random effects estimator.  Hybrid 
> > estimators are also possible (e.g., exploit only between 
> variation for 
> > some regressors and only within variation for others), but 
> you'd have to do those by hand.
> >
> > HTH,
> > Mark
> >
> >> 2. If I run the first stage regression by hand: How do I 
> correct the 
> >> standard errors in the second stage?
> >>
> >> Thanks in advance.
> >>
> >> Best regards,
> >> Benjamin
> >> *
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> >>
> >
> >
> > --
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> University of the 
> > Year 2011-2012
> >
> > Heriot-Watt University is a Scottish charity registered 
> under charity 
> > number SC000278.
> >
> >
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-- 
Heriot-Watt University is the Sunday Times
Scottish University of the Year 2011-2012

Heriot-Watt University is a Scottish charity
registered under charity number SC000278.


*
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