Friday, March 17, 2006

RE: st: ivreset

Austin, Arne,

> -----Original Message----- > From: Austin Nichols [mailto:austinnichols@gmail.com] > Sent: 16 March 2006 23:30 > To: statalist@hsphsun2.harvard.edu > Subject: Re: st: ivreset > > -findit ivreset- then -help ivreset- when installed has a > excellent exposition that begins: > > As Pagan and Hall (1983) and Pesaran and Taylor (1999) point > out, a RESET test for an IV regression cannot use the > standard IV predicted values X*beta-hat, because X includes > endogenous regressors that are correlated with u. > > Try this code instead: > > use http://fmwww.bc.edu/ec-p/data/hayashi/griliches76.dta > qui ivreg2 lw s expr tenure rns smsa (iq=med kww) > predict ytilde > mat b=e(b) > mat li b > qui regress iq s expr tenure rns smsa med kww > qui predict double xh > gen yhat=ytil-b[1,1]*iq+b[1,1]*xh > sum yhat, meanonly > qui replace yhat = (yhat-r(min))/(r(max)-r(min)) > qui gen double yhat2=yhat^2 > qui ivreg2 lw s expr tenure rns smsa yhat2 (iq=med kww) > test yhat2 > qui ivreg2 lw s expr tenure rns smsa (iq=med kww) > ivreset > > Now, as to why > replace yhat = (yhat-r(min))/(r(max)-r(min)) > I cannot tell you, but it's in ivreset.ado

It's to rescale yhat so that when it's squared, cubed, etc., it doesn't get wildly out of scale relative to the other regressors. This can cause problems for the regression that includes these terms.

Cheers, Mark

> On 16 Mar 2006 19:10:13 +0000, Arne Risa Hole wrote: > > I am using ivreset to do a Pesaran-Taylor Reset test after ivreg2. > > However, I am not able to replicate the result from ivreset > manually. For example: > > > > use http://fmwww.bc.edu/ec-p/data/hayashi/griliches76.dta > >

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