Friday, February 03, 2006

st: Re: Binary endogenous variable in a panel data set

Hi all,

I have an unbalanced panel dataset. My dependent variable of interest is continuous but there is also an endogenous binary variable - which I must instrument for. I have used xtivreg to estimate this model. However xtivreg does not account for the binary nature of the endogenous variable (my understanding is that it assumes the endogenous variable to be continuous).

Can some one advise me on any utility/route to deal with this?

One possibility is to do a 2 step routine: Estimate the equation for the endogenous binary variable using xtprobit. Take the predicted values, and use it in the second stage equation and bootstrap the standard errors for the second stage.

Has any one done this and can you advise me on the possible pitfalls?

Best, -Jo

Jyotsna (Jo) Puri I am supporting the education of underprivileged kids. You can too:

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