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  • Using lagged value as an instrument for the endogenous variable.

    Hello,

    This is my first post here, please pardon any mistakes. I am currently researching the effects of climate on crop yield and I am facing endogeneity issues. I read somewhere that using the lag of the endogenous variable works well as an instrument. I am getting significant results for Underidentification and weakidentification tests, from xtoverid, noi command. However, Iam still unsure whether the lagged values work as an endogenous variable. I did the hausman test but Iam unsure of the results as Iam getting contradictory results, but the Davidson-Mackinnon test for exogeneity gave significant results indicating endogeneity. Is there a way to check if the instrument is valid? And which variable is endogenous.
    Thank you

  • #2
    People do it, but it's sketchy in a lot of cases. For instance, if the variable is autocorrelated, then the bias remains (the past is correlated with the present).

    This might help:
    HTML Code:
    https://marcfbellemare.com/wordpress/wp-content/uploads/2019/05/WangBellemareLaggedIVsMay2019.pdf

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