*
*  Example 6.2
*  J. Wooldridge, Econometrics of Cross Section and Panel Data
*
*  Note: The sample data files include all required data transformations.
*        However, in many cases we show how these data transformations would
*        be created in RATS from the basic data, as this is something you will
*        need to know how to do in practice.
*
open data card.raw
data(format=free,org=columns) 1 3010 $
 id nearc2 nearc4 educ age fatheduc motheduc weight $
 momdad14 sinmom14 step14 reg661 reg662 reg663 reg664 reg665 $
 reg666 reg667 reg668 reg669 south66 black smsa south $
 smsa66 wage enroll kww iq married libcrd14 exper $
 lwage expersq
*
set lwage = log(wage)
set expersq = exper**2
set black_educ = black*educ
*
* Run linear regression. (The description in the text should have included
* "south" in the list of explanatory variables).
*
linreg lwage
# constant educ black_educ black exper expersq smsa smsa66 south $
  reg661 reg662 reg663 reg664 reg665 reg666 reg667 reg668
*
set black_nearc4 = black*nearc4
*
* Run the linear regressions of the two potentially endogenous variables on the
* instruments. Save the residuals.
*
linreg educ / eresids
# constant exper expersq black smsa smsa66 south $
  reg661 reg662 reg663 reg664 reg665 reg666 reg667 reg668 nearc4 black_nearc4
linreg black_educ / beresids
# constant exper expersq black smsa smsa66 south $
  reg661 reg662 reg663 reg664 reg665 reg666 reg667 reg668 nearc4 black_nearc4
*
* Rerun the LINREG for lwage, including the two residuals. Test the joint
* significance of the residuals.
*
linreg lwage
# constant educ black_educ black exper expersq smsa smsa66 south $
  reg661 reg662 reg663 reg664 reg665 reg666 reg667 reg668 eresids beresids
exclude
# eresids beresids
*
*  Do the 2SLS estimates
*
instruments constant exper expersq black smsa smsa66 south $
  reg661 reg662 reg663 reg664 reg665 reg666 reg667 reg668 nearc4 black_nearc4
linreg(instruments) lwage
# constant educ black_educ black exper expersq smsa smsa66 south $
  reg661 reg662 reg663 reg664 reg665 reg666 reg667 reg668