Carlos Rodriguez wrote:
> Hi everyone,
>
> Say I have two IVs but they are very highly correlated between
> themselves.  Is it still useful to use both to instrument for the same
> endogenous regressor and then run overidentification tests, or should
> I just choose one of them given to intrument for the endogenous
> regressor (given that the two IVs are so highly correlated...perhaps
> this causes problesms?)?
>
>   
I think the usual thing is to create one instrument with all of the 
predictors that are being used to create your two instruments.  
collinearity among predetermined variables has not harmful effect on the 
instruments that they produce, since the instrument is just a predicted 
value from that first stage regression.

Don't you think so?

pj

-- 
Paul E. Johnson                       email: [log in to unmask]
Professor, Political Science          http://pj.freefaculty.org
1541 Lilac Lane, Rm 504                              
University of Kansas                  Office: (785) 864-9086
Lawrence, Kansas 66044-3177           FAX: (785) 864-5700

**********************************************************
             Political Methodology E-Mail List
   Editors: Melanie Goodrich, <[log in to unmask]>
            Delia Bailey, <[log in to unmask]>
**********************************************************
        Send messages to [log in to unmask]
  To join the list, cancel your subscription, or modify
           your subscription settings visit:

          http://polmeth.wustl.edu/polmeth.php

**********************************************************