Holtz-Eakin-Newey-Rosen example

[TomDoan]

This does single equation estimates using 2SLS, 2SLS with heteroscedasticity robust standard errors and joint estimation using 3SLS, all with the Arellano-Bond sets of instruments.

Tom: Do I need to leave in both 2SLS estimates, or do I choose only 1 for my final code? And when I run the code, I get an error stating:

You only need to leave in whichever one you want. They are all estimated separately.

## CP18. ABLAGS is not the Name of a PROCEDURE. (Did you forget to SOURCE?)
>>>>@ablags(<<<<

Any idea what is going wrong? Thanks.

ABLAGS should be provided with RATS. You might want to check with whomever installed the software to see where all the procs are. At any rate, you can get it at:

http://www.estima.com/procs_perl/ablags.src

[cv003h]

Thanks Tom. If I use the second, hetersked...consistent 2SLS, I probably need to add the "define=" code to the linreg statement, right?

[TomDoan]

Thanks Tom. If I use the second, hetersked...consistent 2SLS, I probably need to add the "define=" code to the linreg statement, right?

The DEFINE in the first two are used to set up the model for 3SLS. So if you want to do the HAC 2SLS, then the 3SLS, then yes, you would want the defines on the 2SLS instructions.

[cv003h]

Two more questions.

In the original paper, the authors talk about "partial differencing", which is equivalent to simple differencing if the coefficients on the firm effect remain unchanged. Does the code you posted assume that, or is there some partial differencing going on behind the scenes?

Secondly, how would I modify the code to uncover year-by-year coefficients rather than estimating a single coefficient for the entire time period?

[TomDoan]

This does single equation estimates using 2SLS, 2SLS with heteroscedasticity robust standard errors and joint estimation using 3SLS, all with the Arellano-Bond sets of instruments.

Tom: Do I need to leave in both 2SLS estimates, or do I choose only 1 for my final code? And when I run the code, I get an error stating:

## CP18. ABLAGS is not the Name of a PROCEDURE. (Did you forget to SOURCE?)
>>>>@ablags(<<<<

Any idea what is going wrong? Thanks.

ABLAGS is a standard RATS procedure. If you're running this on Cornell's network, you might want to check where they installed the procedures.

[cv003h]

ABLAGS is a standard RATS procedure. If you're running this on Cornell's network, you might want to check where they installed the procedures.

I was able to figure this part out, thanks. Now I'm struggling with what to put in the A-B instruments section vs. in the 2SLS section. Why is your capital measure in the AB section but not in the 2SLS section?

[TomDoan]

I was able to figure this part out, thanks. Now I'm struggling with what to put in the A-B instruments section vs. in the 2SLS section. Why is your capital measure in the AB section but not in the 2SLS section?

I think you're asking why it's in the instrument set but not in the model itself. We did that because that was done in the original Gauss program. I'm not sure if this particular example was from a paper that got published. (No one could find the original data set for the Econometrica paper). However, if a variable is seen as being correlated with the "individual effect" but not with the random error, then that variable would be available as an instrument.

The capital measure was taken out of the current version of the program since there is no explanation for why it was there.