Dear All,
Recently I have an exactly the same question with an old faq on Stata about Durbin–Wu–Hausman test.
https://www.stata.com/support/faqs/s...-hausman-test/
I just copy and paste the faq here.
__________________________________________________ __________________________________________________ ________________________
Before estimating the following simultaneous equations,
z = a0 + a1*x1 + a2*x2 + epsilon1 (1) y = b0 + b1*z + b2*x3 + epsilon2 (2)
one should decide whether it is necessary to use an instrumental variable, i.e., whether a set of estimates obtained by least squares is consistent or not.
Davidson and MacKinnon (1993) suggest an augmented regression test (DWH test), which can easily be formed by including the residuals of each endogenous right-hand-side variable, as a function of all exogenous variables, in a regression of the original model. Back to our example, we would first perform a regression
z = c0 + c1*x1 + c2*x2 + c3*x3 + epsilon3 (3)
get residuals z_res, then perform an augmented regression:
y = d0 + d1*z + d2*x3 + d3*z_res + epsilon4 (4)
If d3 is significantly different from zero, then OLS is not consistent.
__________________________________________________ __________________________________________________ ___________________
My question is, the normal Durbin–Wu–Hausman needs a declaration of IV for z. In this case, it must be the x1 and x2. However, in my case, the z is a generated regressor and x1 x2 are a list of long variables even with tons of dummies, like equation (1).
When I try to test the endogeneity of z in equation (2), do I need to prove x1x2 are all uncorrelated with epsilon2 (it is the definition of IV) or just do as the posted faq suggested?
best,
Zhaohui
Related Posts with Is Durbin–Wu–Hausman test a valid test when using generated regressor without any declaration of IVs?
Removing observations with missing values after reshaping to long formatHi I'm sure there is probably a simple solution to this but no matter how much I have looked for an…
Scalars and results r(something), and using such in expressions, and properly dereferencing such scalars and resultsI just realised that I have no idea what is the logic behind how scalars and results such as r(somet…
Percentiles and data trimmingGood morning I tried to find an answer to my (apparently) easy question on the forum, but probably i…
Gini index interpretation - time use dataHi everyone, I am using Italian Time Use surveys to analyze parental time investments. I used ineqde…
Ordinal variables in Latent profile analysisDear Stata users, I have again a doubt on the latent profile analysis in Stata (gsem command). Amon…
Subscribe to:
Post Comments (Atom)
0 Response to Is Durbin–Wu–Hausman test a valid test when using generated regressor without any declaration of IVs?
Post a Comment