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From |
"Justina Fischer" <JAVFischer@gmx.de> |

To |
statalist@hsphsun2.harvard.edu, statalist@hsphsun2.harvard.edu |

Subject |
Re: Antwort: Re: Antwort: Re: Antwort: Re: Antwort: Re: RE: st: Spurious inference from endogeneity tests |

Date |
Wed, 25 Jan 2012 11:49:13 +0100 |

Dear Andreas, finding suitable instruments (in terms of economic-theoretical coherence with the endogenous) is something this list does not aim at. best Justina -------- Original-Nachricht -------- > Datum: Wed, 25 Jan 2012 08:40:54 +0100 > Von: andreas.zweifel@uzh.ch > An: statalist@hsphsun2.harvard.edu > Betreff: Antwort: Re: Antwort: Re: Antwort: Re: Antwort: Re: RE: st: Spurious inference from endogeneity tests > Hi Suyadipta, > > thank you for the suggestion to use -condivreg-. Unfortunately, the > command works with one endogenous regressor only. However, I have two endogenous > regressors due to an interaction of the > original endogenous variable X1 and an exogenous control X2, i.e. my model > looks like > > Y = X1 + X1*X2 + controls + e > > I have been recommended to estimate first X1 by instruments Zi (i=1,...n) > to obtain X1hat, than form interactions X1hat*X2 as instruments to be used > in the -ivreg2- command which then would be > > ivreg2 Y controls (X1 X1*X2 = X1hat X1hat*X2) > > (see http://www.stata.com/statalist/archive/2011-08/msg01496.html) > > This actually solves the endogeneity problem since the F-statistic of the > weak instruments test substantially increases compared to the canned 2SLS > procedure > > ivreg2 Y controls (X1 X1*X2 = Zi Zi*X2) > > where each basic instrument Zi is interacted with X2 yielding n combined > instruments. So in total, I have 2*n instruments for 2 endogenous > regressors. > > In the special case of only one basic instrument Z1 (n=1), the first 2SLS > approach and canned SLS just coincide because the model is exactly > identified in both cases. However, to test whether > the instruments are really valid you should have n>1 instruments for one > endogenous regressor. This yields another problem because in the first 2SLS > approach there are always two endogenous regressors and two instruments by > construction. Thus I can see no way how to test for overidentifying > restrictions with this approach. > > I would appreciate any help with respect to a possible solution to that > problem. > > Andreas Zweifel > > > -----owner-statalist@hsphsun2.harvard.edu schrieb: ----- > An: statalist@hsphsun2.harvard.edu > Von: Suryadipta Roy > Gesendet von: owner-statalist@hsphsun2.harvard.edu > Datum: 24.01.2012 13:20 > Betreff: Re: Antwort: Re: Antwort: Re: Antwort: Re: RE: st: Spurious > inference from endogeneity tests > > Andreas, > Along these lines, I would also suggest that you take a look at the > condivreg command ( - findit condivreg - , the help file and the > related papers) for detecting weak instruments. The Murray (2006) > paper cited below is suggesting in those lines. The Stata journal > references are Mikusheva and Poi (2003), Stata Journal 3: 57–70, and > Mikusheva and Poi (2006), Stata Journal 6: 335–347. > > Best wishes, > Suryadipta. > > On Mon, Jan 23, 2012 at 10:18 AM, Justina Fischer <JAVFischer@gmx.de> > wrote: > > Hi Andreas > > > > 1) true. This is why you should always consult several test stats (incl. > t-stats, F-stats, Shea R2, robust-to-weak instr. stats, etc.) to get an > overall picture. Selecting instruments is a hard and complex business... > > > > 2) reduncancy tests make only sense when you have managed to select good > instruments (it is based on the Sargan/Hansen-J test, if I recall well -> > consult ivreg2 help file). > > > > 3) practice shows it is in most cases to have no of instruments > > endogenous regressors, but not too many in absolute number. For one endogenous > regressor, I usually try to find three instruments. You can increase the > number of instruments artificially by doing some non-linear stuff, e.g. using a > quadratic term. > > > > Best, > > justina > > > > > > -------- Original-Nachricht -------- > >> Datum: Mon, 23 Jan 2012 15:59:27 +0100 > >> Von: andreas.zweifel@uzh.ch > >> An: statalist@hsphsun2.harvard.edu > >> Betreff: Antwort: Re: Antwort: Re: Antwort: Re: RE: st: Spurious > inference from endogeneity tests > > > >> Hi Justina, > >> > >> thank you for the intuitive ideas with respect to the quality of the > >> instruments. > >> > >> So I was wrong with my notion that one should have as many instruments > as > >> endogenous variables in the regression. But I can tell you that I have > >> already tested my model with one endogenous regressor under > overidentification, > >> that is with a whole set of instruments. The Sargan test statistic > using > >> -ivreg2- (or -ivreg28- in Stata8) is clearly not significant then, so > the > >> null that the instruments are exogenous cannot be rejected. However, I > fear > >> that this is weak evidence especially for my setting, because > >> > >> 1) To my knowlegde, Sargan only allows to test whether the instruments > are > >> *jointly* exogenous. It does yield no information about the strength of > >> one single instrument. > >> > >> 2) Using the -redundant- option in -ivreg2-, I get contradictory > results. > >> I tried a sensitivity test with a varying number of possibly good > >> instruments and control variables to find the following: Virtually > every instrument > >> candidate yields a more or less significant p-value for the redundancy > test > >> if combined with many > >> other excluded instruments but few control variables. But reducing the > >> number of instruments or increasing > >> the number of controls in the regression model, the remaining > instruments > >> seem to become more redundant as well. > >> I don't know what is to be held of an instruments relevance test which > >> reacts thus sensitively to minor changes in the model specification. > >> > >> > >> Best, > >> Andreas > >> > >> -----owner-statalist@hsphsun2.harvard.edu schrieb: ----- > >> An: statalist@hsphsun2.harvard.edu > >> Von: "Justina Fischer" > >> Gesendet von: owner-statalist@hsphsun2.harvard.edu > >> Datum: 21.01.2012 01:35 > >> Betreff: Re: Antwort: Re: Antwort: Re: RE: st: Spurious inference from > >> endogeneity tests > >> > >> HI Andreas, > >> > >> there are no 'right' instrumentsas such: there are only good ones > (valid, > >> strong) and bad ones. Imagine ´good´ and ´bad´ being on a > continuous > >> scale: most instruments are somwhere on this scale, but rarely at the > >> extreme. > >> > >> now to the Sargan: > >> "The Sargan test statistic [...] [is] under the null that the error > term > >> is uncorrelated with the instruments." > >> source: http://en.wikipedia.org/wiki/Instrumental_variable > >> > >> so you want a p-value > 0.10 > >> > >> no rejection is what you want: the null means you have good > instruments. > >> > >> I recommend to use ivreg2 whih allows you to test the redundany of > >> instruments. > >> > >> Best > >> Justina > >> > >> > >> -------- Original-Nachricht -------- > >> > Datum: Fri, 20 Jan 2012 21:22:54 +0100 > >> > Von: andreas.zweifel@uzh.ch > >> > An: statalist@hsphsun2.harvard.edu > >> > Betreff: Antwort: Re: Antwort: Re: RE: st: Spurious inference from > >> endogeneity tests > >> > >> > Hi > >> > > >> > I think you are quite right, and my intuition also tells me something > >> > else. Let's assume I have only one endogenous regressor, > >> > but more than one instrument candidates since there is no theoretical > >> > foundation for choosing the 'right' instruments for the > >> > endogenous variable. If I include all of these instruments and the > >> > -overid- test statistic is still not significant, there is > >> > likely something wrong with the instruments. This is because theory > >> claims > >> > that one instrument should suffice here, and each > >> > additional instrument included merely increases the standard > deviation > >> of > >> > the IV estimator. As a consequence, the model must > >> > be overidentified from a theoretical view. However, if the Sargan > test > >> > fails to detect overidentification, this can only be > >> > due to the fact that the selected instruments are quite weak... > >> > > >> > Best, > >> > Andreas > >> > > >> > -----owner-statalist@hsphsun2.harvard.edu schrieb: ----- > >> > An: statalist@hsphsun2.harvard.edu > >> > Von: "Justina Fischer" > >> > Gesendet von: owner-statalist@hsphsun2.harvard.edu > >> > Datum: 19.01.2012 23:22 > >> > Betreff: Re: Antwort: Re: RE: st: Spurious inference from endogeneity > >> > tests > >> > > >> > nope.. the bias could turn the direction of observed influence - how > do > >> > you know then which one is correct (OLS or IV)? > >> > > >> > Rule of thumb is: better no instrument (OLS) than weak ones !! > >> > > >> > it is sufficient to provide good convincing arguments why you > selected > >> the > >> > instruments; there is no need for theoretical models suggesting the > >> > instrument explicitly. Let your phantasy work ! > >> > > >> > Cheers > >> > Justina > >> > > >> > -------- Original-Nachricht -------- > >> > > Datum: Thu, 19 Jan 2012 23:00:00 +0100 > >> > > Von: andreas.zweifel@uzh.ch > >> > > An: statalist@hsphsun2.harvard.edu > >> > > Betreff: Antwort: Re: RE: st: Spurious inference from endogeneity > >> tests > >> > > >> > > Thanks for this clarifying remark. > >> > > > >> > > In addition, literature always stresses the requirement that > >> > > IVs should be selected in line with theoretically motivated > >> > > arguments. But economic theory may sometimes be limited in its > >> > > capability to yield valid instruments. However, when instruments > >> > > are therefore weak, I expect the bias of the IV estimator to be > >> > > similarly large as the OLS estimator. Maybe then it would make > >> > > sense to prefer one of the two estimators in terms of theory > >> > > driven expectations as the lesser evil? > >> > > > >> > > -----owner-statalist@hsphsun2.harvard.edu schrieb: ----- > >> > > An: statalist@hsphsun2.harvard.edu > >> > > Von: Austin Nichols > >> > > Gesendet von: owner-statalist@hsphsun2.harvard.edu > >> > > Datum: 18.01.2012 16:37 > >> > > Betreff: Re: RE: st: Spurious inference from endogeneity tests > >> > > > >> > > In re > >> > > the poster's central question: > >> > > "I have to conclude from my specification tests that my coefficient > >> > > estimates from both OLS and 2SLS cannot be interpreted because 2SLS > >> > > does not succeed in resolving the endogeneity problem?" > >> > > I would answer yes. Without better instruments, you have learned > >> > > nothing from 2SLS, including whether OLS is biased or not. The > overID > >> > > test is no good if you don't have strong instruments, since its > >> > > failure to reject the overID restrictions could be due merely to > the > >> > > weakness of your excluded instruments. > >> > > > >> > > On Tue, Jan 17, 2012 at 6:44 PM, Justina Fischer > <JAVFischer@gmx.de> > >> > > wrote: > >> > > > wow. I am deeply impressed :-) > >> > > > > >> > > > Let us hope the authors provide user-written Stata commands > soon.... > >> > > > > >> > > > justina > >> > > > -------- Original-Nachricht -------- > >> > > >> Datum: Tue, 17 Jan 2012 18:41:27 -0500 > >> > > >> Von: Cameron McIntosh <cnm100@hotmail.com> > >> > > >> An: STATA LIST <statalist@hsphsun2.harvard.edu> > >> > > >> Betreff: RE: st: Spurious inference from endogeneity tests > >> > > > > >> > > >> The following papers will also be helpful: > >> > > >> Murray, M.P. (2006). Avoiding Invalid Instruments and Coping > with > >> > Weak > >> > > >> Instruments. Journal of Economic Perspectives, 20(4), > >> > > >> > >> > > > >> > > >> > 111-132.http://www.eui.eu/Personal/Guiso/Courses/Econometrics/Murray_IV_jep_06.pdf > >> > > >> > >> > > >> Chao, J.C., & Swanson, N.R. (2005). Consistent estimation with a > >> > large > >> > > >> number of weak instruments. Econometrica, 73(5), > >> > > >> > >> > > > >> > > >> > 1673–1692.http://gemini.econ.umd.edu/jrust/econ623/files/chao_swanson_econometrica.pdf > >> > > >> > >> > > >> Nevo, A., & Rosen, A.M. (2010). Identification with Imperfect > >> > > Instruments. > >> > > >> The Review of Economics and Statistics, Accepted for > publication. > >> > > >> > >> > > >> Kolesár, M., Chetty, R., Friedman, J.N., Glaeser, E.L., & > Imbens, > >> > G.W. > >> > > >> (October 2011). Identification and Inference with Many Invalid > >> > > Instruments. > >> > > >> NBER Working Paper No. 17519. http://www.nber.org/papers/w17519 > >> > > >> > >> > > >> Cam > >> > > >> > Date: Wed, 18 Jan 2012 00:06:34 +0100 > >> > > >> > From: JAVFischer@gmx.de > >> > > >> > Subject: Re: st: Spurious inference from endogeneity tests > >> > > >> > To: statalist@hsphsun2.harvard.edu > >> > > >> > > >> > > >> > Hi Andreas > >> > > >> > > >> > > >> > for judging whether instruments are weak or not I would as > first > >> > step > >> > > >> look into the first stage regression results, look at the Shea > R2, > >> > the > >> > > F-test > >> > > >> on the instruments, the single estimates....that tells you > already > >> a > >> > > lot. > >> > > >> Maybe use ivreg2. > >> > > >> > > >> > > >> > Maybe you have only one weak instrument in a set of > instruments > >> you > >> > > >> should exclude (so the set is then strong, even though one > single > >> > weak > >> > > >> instrument may bias your results) > >> > > >> > > >> > > >> > Best > >> > > >> > > >> > > >> > Justina > >> > > >> > > >> > > >> > > >> > > >> > -------- Original-Nachricht -------- > >> > > >> > > Datum: Tue, 17 Jan 2012 22:12:36 +0100 > >> > > >> > > Von: andreas.zweifel@uzh.ch > >> > > >> > > An: statalist@hsphsun2.harvard.edu > >> > > >> > > Betreff: st: Spurious inference from endogeneity tests > >> > > >> > > >> > > >> > > Dear Statausers, > >> > > >> > > > >> > > >> > > I am concerned with an endogeneity problem in my sample of > 126 > >> > > firms > >> > > >> when > >> > > >> > > investigating the relationship between managerial disclosure > >> and > >> > > cost > >> > > >> of > >> > > >> > > capital effects. After running the ivreg28 command, the > >> > > Cragg-Donald > >> > > >> test > >> > > >> > > F-statistic is 2.27, which indicates that my instruments are > >> > rather > >> > > >> weak. > >> > > >> > > However, my model appears to be correctly identified, > because > >> the > >> > > >> Anderson test > >> > > >> > > statistic for the first stage equation yields a p-value > lower > >> > than > >> > > >> 0.01 > >> > > >> > > and the Sargan test statistic is insignificant (p-value = > >> 0.59). > >> > > Since > >> > > >> my > >> > > >> > > instruments have passed the overidentification test, I run > the > >> > > ivendog > >> > > >> command > >> > > >> > > which is equivalent to a Hausman test. Again, the test > >> statistic > >> > is > >> > > >> > > insignificant (p-value = 0.48). > >> > > >> > > > >> > > >> > > If I compare OLS and 2SLS, I find that only the former > yields a > >> > > >> > > significant coefficient of managerial disclosure in the > model > >> > > >> regressing cost of > >> > > >> > > capital on managerial disclosure. Considering the > specification > >> > > tests > >> > > >> above, it > >> > > >> > > seems unlikely that 2SLS is an improvement over OLS. Thus I > >> > assume > >> > > >> that I > >> > > >> > > can take the OLS estimates for causal inference. Is this > >> correct? > >> > > If > >> > > >> yes, > >> > > >> > > the point why I should not use 2SLS is likely due to the > >> weakness > >> > > of > >> > > >> the > >> > > >> > > instruments and the small-sample bias. So I have to conclude > >> from > >> > > my > >> > > >> > > specification tests that my coefficient estimates from both > OLS > >> > and > >> > > >> 2SLS cannot be > >> > > >> > > interpreted because 2SLS does not succeed in resolving the > >> > > endogeneity > >> > > >> > > problem? > >> > > > >> > > * > >> > > * For searches and help try: > >> > > * http://www.stata.com/help.cgi?search > >> > > * http://www.stata.com/support/statalist/faq > >> > > * http://www.ats.ucla.edu/stat/stata/ > >> > > * > >> > > * For searches and help try: > >> > > * http://www.stata.com/help.cgi?search > >> > > * http://www.stata.com/support/statalist/faq > >> > > * http://www.ats.ucla.edu/stat/stata/ > >> > > >> > -- > >> > Justina AV Fischer, PhD > >> > COFIT Fellow > >> > World Trade Institute > >> > University of Bern > >> > > >> > homepage: http://www.justinaavfischer.de/ > >> > e-mail: javfischer@gmx.de. justina.fischer@wti.org > >> > papers: http://ideas.repec.org/e/pfi55.html > >> > > >> > > >> > * > >> > * For searches and help try: > >> > * http://www.stata.com/help.cgi?search > >> > * http://www.stata.com/support/statalist/faq > >> > * http://www.ats.ucla.edu/stat/stata/ > >> > * > >> > * For searches and help try: > >> > * http://www.stata.com/help.cgi?search > >> > * http://www.stata.com/support/statalist/faq > >> > * http://www.ats.ucla.edu/stat/stata/ > >> > >> -- > >> Justina AV Fischer, PhD > >> COFIT Fellow > >> World Trade Institute > >> University of Bern > >> > >> homepage: http://www.justinaavfischer.de/ > >> e-mail: javfischer@gmx.de. justina.fischer@wti.org > >> papers: http://ideas.repec.org/e/pfi55.html > >> > >> > >> * > >> * For searches and help try: > >> * http://www.stata.com/help.cgi?search > >> * http://www.stata.com/support/statalist/faq > >> * http://www.ats.ucla.edu/stat/stata/ > >> * > >> * For searches and help try: > >> * http://www.stata.com/help.cgi?search > >> * http://www.stata.com/support/statalist/faq > >> * http://www.ats.ucla.edu/stat/stata/ > > > > -- > > Justina AV Fischer, PhD > > COFIT Fellow > > World Trade Institute > > University of Bern > > > > homepage: http://www.justinaavfischer.de/ > > e-mail: javfischer@gmx.de. justina.fischer@wti.org > > papers: http://ideas.repec.org/e/pfi55.html > > > > > > * > > * For searches and help try: > > * http://www.stata.com/help.cgi?search > > * http://www.stata.com/support/statalist/faq > > * http://www.ats.ucla.edu/stat/stata/ > > * > * For searches and help try: > * http://www.stata.com/help.cgi?search > * http://www.stata.com/support/statalist/faq > * http://www.ats.ucla.edu/stat/stata/ > * > * For searches and help try: > * http://www.stata.com/help.cgi?search > * http://www.stata.com/support/statalist/faq > * http://www.ats.ucla.edu/stat/stata/ -- Justina AV Fischer, PhD COFIT Fellow World Trade Institute University of Bern homepage: http://www.justinaavfischer.de/ e-mail: javfischer@gmx.de. justina.fischer@wti.org papers: http://ideas.repec.org/e/pfi55.html * * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/

**Follow-Ups**:**Re: Antwort: Re: Antwort: Re: Antwort: Re: Antwort: Re: RE: st: Spurious inference from endogeneity tests***From:*Suryadipta Roy <sroy2138@gmail.com>

**References**:**Re: Antwort: Re: Antwort: Re: Antwort: Re: RE: st: Spurious inference from endogeneity tests***From:*Suryadipta Roy <sroy2138@gmail.com>

**Re: Antwort: Re: Antwort: Re: RE: st: Spurious inference from endogeneity tests***From:*"Justina Fischer" <JAVFischer@gmx.de>

**Re: Antwort: Re: RE: st: Spurious inference from endogeneity tests***From:*"Justina Fischer" <JAVFischer@gmx.de>

**Re: RE: st: Spurious inference from endogeneity tests***From:*Austin Nichols <austinnichols@gmail.com>

**st: Spurious inference from endogeneity tests***From:*andreas.zweifel@uzh.ch

**Re: st: Spurious inference from endogeneity tests***From:*"Justina Fischer" <JAVFischer@gmx.de>

**RE: st: Spurious inference from endogeneity tests***From:*Cameron McIntosh <cnm100@hotmail.com>

**Re: RE: st: Spurious inference from endogeneity tests***From:*"Justina Fischer" <JAVFischer@gmx.de>

**Antwort: Re: RE: st: Spurious inference from endogeneity tests***From:*andreas.zweifel@uzh.ch

**Antwort: Re: Antwort: Re: RE: st: Spurious inference from endogeneity tests***From:*andreas.zweifel@uzh.ch

**Antwort: Re: Antwort: Re: Antwort: Re: RE: st: Spurious inference from endogeneity tests***From:*andreas.zweifel@uzh.ch

**Re: Antwort: Re: Antwort: Re: Antwort: Re: RE: st: Spurious inference from endogeneity tests***From:*"Justina Fischer" <JAVFischer@gmx.de>

**Antwort: Re: Antwort: Re: Antwort: Re: Antwort: Re: RE: st: Spurious inference from endogeneity tests***From:*andreas.zweifel@uzh.ch

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