Re: st: first stage results using ivregress with vce(cluster)

[Souvik Banerjee <bobobanerjee@gmail.com>]

Hi Alfonso,
Thanks for the response. I agree that  -ivregress 2SLS- is probably
applying the clustering in the second stage only. I, however, feel the
standard errors should be clustered in the first stage as well because
one would need the "correct" standard errors from the first stage
regression to test for the relevalence of the instrumental variable
(z) (which I need to test).

I apologize for the confusion with the clustering syntax - it is a
typo. The correct code should be:

ivregress 2sls y x (x1 = z), first vce(cluster x2)
and then manually run:
regress x1 x z, cluster vce(cluster x2)

Thanks again.

Best,
Souvik

On Tue, Mar 11, 2014 at 9:50 AM, Alfonso Sanchez-Penalver
<alfonso.statalist@gmail.com> wrote:
> Hi Souvik,
>
> What you're saying is normal. The first stage regression(s) is only useful to predict the values of the endogenous variable(s) so that they can be used in the second stage, so for 2SLS estimation purposes the standard errors of the first stage are not that important. Therefore my understanding is that -ivregress 2SLS- only applies the clustering for the standard errors in the second stage, not the first.
>
> Having said that, I'm confused with your syntax. You say that you use -vce(cluster clustervariable)- but I don't see this option in your clarifying example but rather -cluster(x2)-.
>
> Best,
>
> Alfonso Sanchez-Penalver
>
>> On Mar 11, 2014, at 9:09 AM, Souvik Banerjee <bobobanerjee@gmail.com> wrote:
>>
>> Dear Stata users,
>> I have a question about verifying the first stage regression results
>> obtained using the "first" option with "ivregress 2sls" with those
>> obtained by manually running the first stage regression (using
>> "regress") of the endogenous variable on the IV and other covariates
>> when I use the "vce(cluster clustervariable)" option to allow for
>> clustering. The coefficients are the same in both cases, however the
>> standard errors are different - which should not be the case. Does
>> anyone have any idea why this might happen? However, if I do not allow
>> for clustering, the standard errors are the same in both cases - which
>> is correct.
>>
>> To clarify, I run:
>> ivregress 2sls y x (x1 = z), first (cluster x2)
>> and then manually run:
>> regress x1 x z, cluster (x2)
>>
>> Here, y is binary variable, x is vector of covariates (x1, x2, ...
>> xk), x1 is the endogenous variable (binary) and z the instrumental
>> variable.
>>
>> Thanks,
>>
>> Souvik
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