+ Reply to Thread
Results 1 to 5 of 5

Thread: IV regression help

  1. #1
    Points: 44, Level: 1
    Level completed: 88%, Points required for next Level: 6

    Posts
    4
    Thanks
    0
    Thanked 0 Times in 0 Posts

    IV regression help




    Hello everyone,

    Im confused about endogeneity and how to approach this problem in a case of one equation and multiple equations that are jointly determined (simultaneous)

    One equation

    D = Endogenous, Z1 = instrument, E = error

    Equation: Y = D + X2 + X3 + E
    The first stage: D = Z1 + X2 + X3 + E
    Reduced form: Y = Z1 + X2 + X3 + E

    The first stage is OLS regression of endogneous on all exogenous and IV. It is used to check whether the IV a good instrument (high t-value). The fitted values are substituted in the second stage. I get this part.

    Question 1: But: what does the reduced form tell us (in non-mathematical language)? What is the function of the reduced form?

    simultaneous equation (2 equations)

    For example supply and demand.

    Demand equation: Qd = D1(price) + X2 + X3 + X4 + E
    Supply equation: Qs = D1(price) + X2 + E
    X3 does not appear in the supply equation (Use it as IV), hence supply is identified.

    First stage: D1(price) = X3 + X4 + E
    Reduced form: Qs = X3 + X4 + X2 + E
    Question 2: is the first stage correctly specified?

    Question 3: is the reduced form correctly specified?

    In general, I do not know how to specify the model in case of simultaneous equations, like supply and demand. That is the reason for asking question 2 and 3.

    If someone can explain the above I would really appreciate that!!

    I posted this question on stackexchange to. But I get the feeling there are more people around here that can help. If I receive an answer on stackexchange I will post it here

  2. #2
    Points: 44, Level: 1
    Level completed: 88%, Points required for next Level: 6

    Posts
    4
    Thanks
    0
    Thanked 0 Times in 0 Posts

    Re: IV regression help

    Does someone have a clue?

  3. #3
    Omega Contributor
    Points: 39,138, Level: 100
    Level completed: 0%, Points required for next Level: 0
    hlsmith's Avatar
    Location
    Not Ames, IA
    Posts
    7,086
    Thanks
    404
    Thanked 1,196 Times in 1,157 Posts

    Re: IV regression help

    Are the Xs confounders of D and Y? So you are using Z to go further up stream to get past the confounding?


    I have only ran locally average treatment effects before and simple mediation analyses, so I would help more if I could in regards to the modeling. I would imagine there are some good economics or social science YouTube videos out there on IVs. It may help if you draw out a graph showing the assumed relationships between variables and post it. We have one regular on this site that is familiar with SEM that may be able to help. If I see him around I will direct him to this post.


    Thanks.
    Stop cowardice, ban guns!

  4. #4
    Points: 44, Level: 1
    Level completed: 88%, Points required for next Level: 6

    Posts
    4
    Thanks
    0
    Thanked 0 Times in 0 Posts

    Re: IV regression help

    To get past the confounding I use indeed the instrument Z1. The other Xs are not confounders, they are exogenous. In the SEM model X3 is used as IV and is exogenous. The other Xs are exogenous to. However, only the independent variable D is endogenous.
    A graphical representation of the above is as follows:


    The D variable is problematic in equation one and two.

    I watched all the videos available on youtube and read a lot of papers. But it appears that the terms reduced form and first stage are used interchangeably. It makes it difficult to gasp this subject.

    Thanks for your time and effort.

  5. #5
    Points: 44, Level: 1
    Level completed: 88%, Points required for next Level: 6

    Posts
    4
    Thanks
    0
    Thanked 0 Times in 0 Posts

    Re: IV regression help


    Perhaps i can make the question more easy:
    Can someone explain the difference between the reduced form and the first stage and the goal of each of these forms?

+ Reply to Thread

           




Tags for this Thread

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts






Advertise on Talk Stats