st: RE: FW: clustering in ivreg2

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

Sterling,

> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu [mailto:owner-
> statalist@hsphsun2.harvard.edu] On Behalf Of HUANG Sterling
> Sent: 28 January 2013 09:53
> To: statalist@hsphsun2.harvard.edu
> Subject: st: FW: clustering in ivreg2
> 
> Dear Statalister,
> 
> I have problem with clustering option in ivreg2 and I hope to get a better
> understanding.
> 
> Here is the problem:
> I am regressing firm level performance on variable X and X*Y(interaction
> between X and Y). X is endogenous, Y is exogenous and X*Y by construction
> is endogenous. I use instrument Z and Z*Y to instrument both X and X*Y. The
> problem is that X is at firm level while Z is at country level.
> 
> When I use ivreg2 with clustering option at country level,
>                 Ivreg2 performance (X XY=Z ZY) control variables,
> cluster(country_code)
> 
> I keep getting following warning messages from STATA:
> 
> Warning: estimated covariance matrix of moment conditions not of full rank.
> standard errors and model tests should be interpreted with caution.
> Possible causes: number of clusters insufficient to calculate robust covariance
> matrix singleton dummy variable (dummy with one 1 and N-1 0s or vice
> versa) partial option may address problem.
> 
> I also tried with partial(country_code) option in the ivreg2 command, and I
> get following error message.
> Error: country_code listed in partial() but not in list of regressors.
> invalid syntax
> 
> Questions:
> 1. Does anyone know what these warning and error mean and how to fix it?

The messages are fairly self-explanatory.  I think the Baum et al. 2003 and/or 2007 papers cited in the ivreg2 help file briefly discuss the first problem.  For a Stata online source, see

help j_robustsingular

from within Stata.

Your problem with the partial option is also self-explanatory:

> Error: country_code listed in partial() but not in list of regressors.
> invalid syntax

is an error because country_code is not a REGRESSOR in

>  ivreg2 performance (X XY=Z ZY) control variables, cluster(country_code)

You need to partial out REGRESSORS, i.e.,

>  ivreg2 performance (X XY=Z ZY) control variables, cluster(selected control variables)

See also the discussion in the ivreg2 help file on the partial option:

help ivreg2##s_partial

--Mark

> 2. Can we do this manually in two stages: I estimate two first stage
> probit/logit regressions for X and X*Y using instrument Z and Z*Y  with
> clustering at country level and then use predicted value of X and X*Y in the
> second stage for performance regression? I tried, it went through, but I am
> not sure econometrically whether I can do this or not.
> 
> Best,
> 
> Sterling
> 
> 
> 
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