*
* INSTRUMENT.RPF
* Example of estimation using two-stage least squares.
* RATS User's Guide, example from Section 2.5.
*
* Based on example 9.5 from Wooldridge(2010), "Econometrics of Cross
* Section and Panel Data", 2nd ed.
*
open data mroz.raw
data(format=free,org=columns) 1 428 inlf hours kidslt6 kidsge6 $
age educ wage repwage hushrs husage huseduc huswage faminc mtr $
motheduc fatheduc unem city exper nwifeinc lwage expersq
*
set lwage = log(wage)
set expersq = exper^2
*
* Estimate the labor supply function by OLS
*
linreg hours
# constant lwage educ age kidslt6 kidsge6 nwifeinc
*
* Now by 2SLS
*
instruments constant educ age kidslt6 kidsge6 nwifeinc exper expersq
linreg(instruments) hours
# constant lwage educ age kidslt6 kidsge6 nwifeinc
*
* Check the reduced form for log(wage) and see if the instruments
* excluded from the labor demand function (exper and expersq) work.
*
linreg lwage
# constant educ age kidslt6 kidsge6 nwifeinc exper expersq
*
* Estimate the wage equation by 2SLS
*
linreg(instruments) lwage
# constant hours educ exper expersq
*
* Estimate the reduced form for hours.
*
linreg hours
# constant educ age kidslt6 kidsge6 nwifeinc exper expersq