This just in from the ivreg2 team (Chris Baum, Mark Schaffer, and Steve Stillman):
How should you construct a first stage F stat to measure instrument strength when you have more than one endogenous variable? Not by following the instructions we gave at the bottom of page 218. Althought the theoretical expressions that motivate the p. 218 procedure are right, the computational algorithm we gave is not.
Specifically, where it says:
“regress the first-stage fitted values (for x_2) on the other first-stage fitted values and any exogenous covs . . .”
it should read:
“regress x_2 on the other first stage fitted values and any exogenous covs . . .”
If you do what we originally wrote, you’ll get an R2 of one, always a cause for concern.
Thanks guys for cleaning this up!
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[…] usually like) you at least oughta look at the appropriate first stage Fs. And, as explained in an earlier post, we didn’t give the right formula in MHE. Luckily, this is now programmed in ivreg2. The […]