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

[Suryadipta Roy <sroy2138@gmail.com>]

Souvik,
The other option (probably the preferred one to me) is to use - ivreg2
- which comes with a wide array of tests on instrumental validity,
i.e. testing for weak instruments as well as overidentification. Try -
help ivreg2 - and the command that is most pertinent to your query is
-condivreg- .

Best wishes,
Suryadipta.

On Wed, Mar 12, 2014 at 8:49 AM, Souvik Banerjee <bobobanerjee@gmail.com> wrote:
> Yes, by relevance I meant testing for weak instruments. I will try it
> out. Thanks.
>
> Best,
> Souvik
>
> On Wed, Mar 12, 2014 at 8:40 AM, Alfonso Sanchez-Penalver
> <alfonso.statalist@gmail.com> wrote:
>> If by relevance of the instruments you mean that they are not weak, which is what I think you mean, that is what is tested with -estat firststage- which takes into consideration the clustering in the vce. To try it out, do the 2SLS estimation with and without vce(cluster clusterid), and try the test right after each estimation. You ought to get different results.
>>
>> Best,
>>
>> Alfonso Sanchez-Penalver
>>
>>> On Mar 12, 2014, at 8:20 AM, Souvik Banerjee <bobobanerjee@gmail.com> wrote:
>>>
>>> Hi Alfonso,
>>> I am following up on your response yesterday. Thanks for your help. I
>>> am aware of the formal tests for endogeneity and instrument validity.
>>> I was actually referring to the test for relevance of the
>>> instrument(s), which to my knowledge is just based on the first stage
>>> results.
>>>
>>> Thanks again.
>>>
>>> Best,
>>> Souvik
>>>
>>> On Tue, Mar 11, 2014 at 11:03 AM, Alfonso Sánchez-Peñalver
>>> <alfonso.statalist@gmail.com> wrote:
>>>> Hi again Souvik,
>>>>
>>>> to test for endogeneity and the validity of the instruments more formal tests are preferred than just inferencing on the results from the first stage. See -help ivregress_postestimation-. Both -estat endogenous- and -estat overid- provide Wooldridge's (1995) robust score tests. Also -estat firststage- accounts for the robustness of the VCE if I'm not wrong.
>>>>
>>>> Wooldridge, J. M. 1995.  Score diagnostics for linear models estimated by two stage least squares.  In Advances in Econometrics and Quantitative Economics: Essays in Honor of Professor C. R. Rao, ed. G. S. Maddala, P. C. B. Phillips, and T. N. Srinivasan, 66-87.  Oxford: Blackwell.
>>>>
>>>> Best,
>>>>
>>>> Alfonso Sánchez-Peñalver, PhD
>>>>
>>>>
>>>>> On Mar 11, 2014, at 10:13 AM, Souvik Banerjee <bobobanerjee@gmail.com> wrote:
>>>>>
>>>>> 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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