Microeconometrics Using Stata Second Edition Volume I Cross Sectional and Panel Regression Models A. Colin Cameron & Pravin K. Trivedi
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Microeconometrics Using Stata
Volume I: Cross-Sectional and Panel
Regression Methods
Second Edition
A. COLIN CAMERON
Department of Economics
University of California, Davis, CA
and
School of Economics
University of Sydney, Sydney, Australia
PRAVIN K. TRIVEDI
School of Economics
University of Queensland, Brisbane, Australia
and
Department of Economics
Indiana University, Bloomington, IN
®
Typeset in LaTeX2e
10 9 8 7 6 5 4 3 2 1
Stata and Stata Press are registered trademarks with the World Intellectual
Property Organization of the United Nations.
1 Stata basics
1.1 Interactive use
1.2 Documentation
1.3 Command syntax and operators
1.4 Do-files and log files
1.5 Scalars and matrices
1.6 Using results from Stata commands
1.7 Global and local macros
1.8 Looping commands
1.9 Mata and Python in Stata
1.10 Some useful commands
1.11 Template do-file
1.12 Community-contributed commands
1.13 Additional resources
1.14 Exercises
2 Data management and graphics
2.1 Introduction
2.2 Types of data
2.3 Inputting data
2.4 Data management
2.5 Manipulating datasets
2.6 Graphical display of data
2.7 Additional resources
2.8 Exercises
3 Linear regression basics
3.1 Introduction
3.2 Data and data summary
3.3 Transformation of data before regression
3.4 Linear regression
3.5 Basic regression analysis
3.6 Specification analysis
3.7 Specification tests
3.8 Sampling weights
3.9 OLS using Mata
3.10 Additional resources
3.11 Exercises
4 Linear regression extensions
4.1 Introduction
4.2 In-sample prediction
4.3 Out-of-sample prediction
4.4 Predictive margins
4.5 Marginal effects
4.6 Regression decomposition analysis
4.7 Shapley decomposition of relative regressor importance
4.8 Difference-in-differences estimators
4.9 Additional resources
4.10 Exercises
5 Simulation
5.1 Introduction
5.2 Pseudorandom-number generators
5.3 Distribution of the sample mean
5.4 Pseudorandom-number generators: Further details
5.5 Computing integrals
5.6 Simulation for regression: Introduction
5.7 Additional resources
5.8 Exercises
6 Linear regression with correlated errors
6.1 Introduction
6.2 Generalized least-squares and FGLS regression
6.3 Modeling heteroskedastic data
6.4 OLS for clustered data
6.5 FGLS estimators for clustered data
6.6 Fixed-effects estimator for clustered data
6.7 Linear mixed models for clustered data
6.8 Systems of linear regressions
6.9 Survey data: Weighting, clustering, and stratification
6.10 Additional resources
6.11 Exercises
7 Linear instrumental-variables regression
7.1 Introduction
7.2 Simultaneous equations model
7.3 Instrumental-variables regression
7.4 Instrumental-variables example
7.5 Weak instruments
7.6 Diagnostics and tests for weak instruments
7.7 Inference with weak instruments
7.8 Finite sample inference with weak instruments
7.9 Other estimators
7.10 Three-stage least-squares systems estimation
7.11 Additional resources
7.12 Exercises
8 Linear panel-data models: Basics
8.1 Introduction
8.2 Panel-data methods overview
8.3 Summary of panel data
8.4 Pooled or population-averaged estimators
8.5 Fixed-effects or within estimator
8.6 Between estimator
8.7 Random-effects estimator
8.8 Comparison of estimators
8.9 First-difference estimator
8.10 Panel-data management
8.11 Additional resources
8.12 Exercises
9 Linear panel-data models: Extensions
9.1 Introduction
9.2 Panel instrumental-variables estimation
9.3 Hausman–Taylor estimator
9.4 Arellano–Bond estimator
9.5 Long panels
9.6 Additional resources
9.7 Exercises
10 Introduction to nonlinear regression
10.1 Introduction
10.2 Binary outcome models
10.3 Probit model
10.4 MEs and coefficient interpretation
10.5 Logit model
10.6 Nonlinear least squares
10.7 Other nonlinear estimators
10.8 Additional resources
10.9 Exercises
11 Tests of hypotheses and model specification
11.1 Introduction
11.2 Critical values and p-values
11.3 Wald tests and confidence intervals
11.4 Likelihood-ratio tests
11.5 Lagrange multiplier test (or score test)
11.6 Multiple testing
11.7 Test size and power
11.8 The power onemean command for multiple regression
11.9 Specification tests
11.10 Permutation tests and randomization tests
11.11 Additional resources
11.12 Exercises
12 Bootstrap methods
12.1 Introduction
12.2 Bootstrap methods
12.3 Bootstrap pairs using the vce(bootstrap) option
12.4 Bootstrap pairs using the bootstrap command
12.5 Percentile-t bootstraps with asymptotic refinement
12.6 Wild bootstrap with asymptotic refinement
12.7 Bootstrap pairs using bsample and simulate
12.8 Alternative resampling schemes
12.9 The jackknife
12.10 Additional resources
12.11 Exercises
13 Nonlinear regression methods
13.1 Introduction
13.2 Nonlinear example: Doctor visits
13.3 Nonlinear regression methods
13.4 Different estimates of the VCE
13.5 Prediction
13.6 Predictive margins
13.7 Marginal effects
13.8 Model diagnostics
13.9 Clustered data
13.10 Additional resources
13.11 Exercises
14 Flexible regression: Finite mixtures and nonparametric
14.1 Introduction
14.2 Models based on finite mixtures
14.3 FMM example: Earnings of doctors
14.4 Global polynomials
14.5 Regression splines
14.6 Nonparametric regression
14.7 Partially parametric regression
14.8 Additional resources
14.9 Exercises
15 Quantile regression
15.1 Introduction
15.2 Conditional quantile regression
15.3 CQR for medical expenditures data
15.4 CQR for generated heteroskedastic data
15.5 Quantile treatment effects for a binary treatment
15.6 Additional resources
15.7 Exercises
A Programming in Stata
A.1 Stata matrix commands
A.2 Programs
A.3 Program debugging
A.4 Additional resources
B Mata
B.1 How to run Mata
B.2 Mata matrix commands
B.3 Programming in Mata
B.4 Additional resources
C Optimization in Mata
C.1 Mata moptimize() function
C.2 Mata optimize() function
C.3 Additional resources
Glossary of abbreviations
References
Author index
Subject index
Tables
2.1 Stata’s numeric storage types
3.1 Postestimation commands
4.1 DID computation example
6.1 OLS and FGLS estimators and their estimated variance
7.1 IV estimators and their asymptotic variances
8.1 Summary of xt commands for linear panel models
13.1 Some estimation commands for linear and nonlinear cross-sectional
models
Figures
1.1 Basic help contents
2.1 A basic scatterplot of log earnings on hours
2.2 A more elaborate scatterplot of log earnings on hours
2.3 Box-and-whisker plots of annual hours for four categories of
educational attainment
2.4 A histogram for log earnings
2.5 The estimated density of log earnings
2.6 Histogram and kernel density plot for log earnings
2.7 Twoway scatterplot and fitted quadratic with confidence bands
2.8 Local constant plot of log earnings against hours
2.9 Local linear and lowess plots of log earnings against hours
2.10 Multiple scatterplots of several variables for each level of education
3.1 Comparison of densities of level and natural logarithm of medical
expenditures
3.2 Residuals plotted against fitted values after OLS regression
3.3 Q–Q plot of residuals against normal and kernel density estimate
4.1 Predictive margins 1) by age and 2) by age and gender
4.2 Predictive margins 1) by age for men and 2) by age for women
5.1 (10) and Poisson(5) draws
5.2 Histogram for one sample of size 30
5.3 Histogram of the 10,000 sample means, each from a sample of size 30
5.4 Halton sequence compared with uniform draws
5.5 statistic density compared with theoretical
6.1 Absolute residuals graphed against and
8.1 Time-series plots of log wage against year and weeks worked against
year for each of the first 20 observations
8.2 Overall scatterplot of log wage against experience using all
observations
8.3 Within scatterplot of log-wage deviations from individual means
against experience deviations from individual means
10.1 Probit model and associated ME
11.1 (5) density compared with 5 times density
11.2 Power curve for the test of against when
takes on the values under and and
11.3 Power curves at test size 0.05 and at sizes 0.05 and 0.10
12.1 Distribution of from pairs percentile- bootstrap
14.1 Finite mixture compared with weighted sum of normal random
variables
14.2 Finite mixture density of three normal distributions
14.3 Component-wise density of fitted values
14.4 Plot of fitted quadratic and quartic models
14.5 Piecewise linear: Single regressor z without and with additional
regressors
14.6 Natural cubic spline and smoothing spline
14.7 Local linear regression using lpoly and npregress kernel
15.1 Quantiles of the dependent variable
15.2 QR and OLS coefficients and confidence intervals for each regressor as
varies from to
15.3 Density of , quantiles of , and scatterplots of and
15.4 Quantile and density plots of log expenditure for those with and
without supplementary insurance
Preface to the Second Edition
Microeconometrics Using Stata, published in December 2008, was written
for Stata 10.1. Microeconometrics Using Stata, Revised Edition, published in
January 2010, was written for Stata 11.0. This second edition is written for
Stata 17.
This second edition covers over ten years of both enhancements to Stata
and developments in the methods most commonly used in empirical
microeconometrics analysis. The focus of the book remains the use of linear
and nonlinear regression methods for cross-sectional and short panel data. In
particular, we give only short treatment to other features of Stata that are
useful for data analysis such as data management, use within Stata of other
programming languages such as Python, and automated document
preparation. The new edition is much expanded and is split into two
volumes.
The first volume, comprising chapters 1–15 and Stata and Mata
appendixes, focuses on the linear regression model and provides a brief
introduction to nonlinear regression models. This volume is an expanded
version of chapters 1–10, 12–13, and the appendixes of the first and revised
editions. In places, there is greater explanation of underlying methods, and
much of the first volume is intended to be suitable for an advanced
undergraduate course in addition to serving graduate students and
researchers.
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arguments in their application to every new development that they
supplied every logical want in the Northern mind. Republican
orators and newspapers quoted and endorsed, until nearly every
reading mind was imbued with the same sentiments, until in fact the
Northern Democrats, and at all times the Douglas Democrats, were
ready to stand by the flag of the Union. George W. Curtis, in
Harper’s Weekly (a journal which at the time graphically illustrated
the best Union thoughts and sentiments), in an issue as late as
January 12th, 1872, well described the power of Webster’s grand
ability[11] over a crisis which he did not live to see, Mr. Curtis says:—
“The war for the Union was a vindication of that theory of its
nature which Webster had maintained in a memorably impregnable
and conclusive manner. His second speech on Foot’s resolution—the
reply to Hayne—was the most famous and effective speech ever
delivered in this country. It stated clearly and fixed firmly in the
American mind the theory of the government, which was not, indeed,
original with Webster, but which is nowhere else presented with such
complete and inexorable reason as in this speech. If the poet be the
man who is so consummate a master of expression that he only says
perfectly what everybody thinks, upon this great occasion the orator
was the poet. He spoke the profound but often obscured and dimly
conceived conviction of a nation. He made the whole argument of the
civil war a generation before the war occurred, and it has remained
unanswered and unanswerable. Mr. Everett, in his discourse at the
dedication of the statute of Webster, in the State-House grounds in
Boston in 1859, described the orator at the delivery of this great
speech. The evening before he seemed to be so careless that Mr.
Everett feared that he might not be fully aware of the gravity of the
occasion. But when the hour came, the man was there. ‘As I saw him
in the evening, if I may borrow an illustration from his favorite
amusement,’ said Mr. Everett, ‘he was as unconcerned and as free of
spirit as some here have often seen him while floating in his fishing-
boat along a hazy shore, gently rocking on the tranquil tide, dropping
his line here and there with the varying fortune of the sport. The next
morning he was like some mighty admiral, dark and terrible, casting
the long shadow of his frowning tiers far over the sea, that seemed to
sink beneath him; his broad pennant streaming at the main, the
Stars and Stripes at the fore, the mizzen, and the peak, and bearing
down like a tempest upon his antagonist, with all his canvas strained
to the wind, and all his thunders roaring from his broadsides.’ This
passage well suggests that indescribable impression of great oratory
which Rufus Choate, in his eulogy of Webster at Dartmouth College,
conveys by a felicitous citation of what Quintilian says of Hortensius,
that there was some spell in the spoken word which the reader
misses.”
As we have remarked, the Republicans were awaiting the coming
of a near and greater power to themselves, and at the same time
jealously watching the movements of the friends of the South in
Congress and in the President’s Cabinet. It needed all their
watchfulness to prevent advantages which the secessionists thought
they had a right to take. Thus Jefferson Davis, on January 9th, 1860,
introduced to the senate a bill “to authorize the sale of public arms to
the several States and Territories,” and as secession became more
probable he sought to press its passage, but failed. Floyd, the
Secretary of War, was far more successful, and his conduct was made
the subject of the following historic and most remarkable report:-
Transfer of U. S. Arms South In 1859–60.
All of these arms, except those sent to the North Carolina Arsenal,
[12]
have been seized by the authorities of the several States of South
Carolina, Alabama, Louisiana and Georgia, and are no longer in
possession of the United States.
It will appear by the testimony herewith presented, that on the
20th of October last the Secretary of War ordered forty columbiads
and four thirty-two pounders to be sent from the Arsenal at Pittsburg
to the fort on Ship Island, on the coast of Mississippi, then in an
unfinished condition, and seventy columbiads and seven thirty-two
pounders to be sent from the same Arsenal to the fort at Galveston,
in Texas, the building of which had scarcely been commenced.
This order was given to the Secretary of War, without any report
from the Engineer department showing that said works were ready
for their armament, or that the guns were needed at either of said
points.
It will be seen by the testimony of Captain Wright, of the Engineer
department, that the fort at Galveston cannot be ready for its entire
armament in less than about five years, nor for any part of it in less
than two; and that the fort at Ship Island will require an
appropriation of $85,000 and one year’s time before it can be ready
for any part of its armament. This last named fort has been taken
possession of by the State authorities of Mississippi.
The order of the late Secretary of War (Floyd) was countermanded
by the present Secretary (Holt) before it had been fully executed by
the shipment of said guns from Pittsburg.[13]
It will be seen by a communication from the Ordnance office of the
21st of January last, that by the last returns there were remaining in
the United States arsenals and armories the following small arms,
viz:
Total 541,565
And the department has been unofficially advised that the arsenal
at Chattahoochee, Forts McRea and Barrancas, and Barracks, have
been seized by the authorities of Florida.
To what further extent the small arms in possession of the United
States may have been reduced by these figures, your committee have
not been advised.
The whole number of the seaboard forts in the United States is
fifty-seven; their appropriate garrison in war would require 26,420
men; their actual garrison at this time is 1,334 men, 1,308 of whom
are in the forts at Governor’s Island, New York; Fort McHenry,
Maryland; Fort Monroe, Virginia, and at Alcatraz Island, California,
in the harbor of San Francisco.
From the facts elicited, it is certain that the regular military force
of the United States, is wholly inadequate to the protection of the
forts, arsenals, dock-yards, and other property of the United States in
the present disturbed condition of the country. The regular army
numbers only 18,000 men when recruited to its maximum strength,
and the whole of this force is required for the protection of the
border settlements against Indian depredations. Unless it is the
intention of Congress that the forts, arsenals, dock-yards and other
public property, shall be exposed to capture and spoliation, the
President must be armed with additional force for their protection.
In the opinion of the Committee the law of February 28th, 1795,
confers upon the President ample power to call out the militia,
execute the laws and protect the public property. But as the late
Attorney-General has given a different opinion, the Committee to
remove all doubt upon the subject, report the accompanying bill, etc.
OTHER ITEMS.
Statement of Arms distributed by Sale since the first of January,
1860, to whom sold and the place whence sold.
SENATE.
HOUSE OF REPRESENTATIVES.
The above expressions from Lincoln and Black well state the
position of the Republican and the administration Democrats on the
eve of the rebellion, and they are given for that purpose. The views of
the original secessionists are given in South Carolina’s declaration.
Those of the conservatives of the South who hesitated and leaned
toward the Union, were best expressed before the Convention of
Georgia in the
This step (of secession) once taken can never be recalled; and all
the baleful and withering consequences that must follow, will rest on
the convention for all coming time. When we and our posterity shall
see our lovely South desolated by the demon of war, which this act of
yours will inevitably invite and call forth; when our green fields of
waving harvest shall be trodden down by the murderous soldiery and
fiery car of war sweeping over our land; our temples of justice laid in
ashes; all the horrors and desolations of war upon us; who but this
Convention will be held responsible for it? and who but him who
shall have given his vote for this unwise and ill-timed measure, as I
honestly think and believe, shall be held to strict account for this
suicidal act by the present generation, and probably cursed and
execrated by posterity for all coming time, for the wide and
desolating ruin that will inevitably follow this act you now propose to
perpetrate? Pause, I entreat you, and consider for a moment what
reasons you can give that will even satisfy yourselves in calmer
moments—what reason you can give to your fellow sufferers in the
calamity that it will bring upon us. What reasons can you give to the
nations of the earth to justify it? They will be the calm and deliberate
judges in the case; and what cause or one overt act can you name or
point, on which to rest the plea of justification? What right has the
North assailed? What interest of the South has been invaded? What
justice has been denied? and what claim founded in justice and right
has been withheld? Can either of you to-day name one governmental
act of wrong, deliberately and purposely done by the government of
Washington, of which the South has a right to complain? I challenge
the answer. While on the other hand, let me show the facts (and
believe me, gentlemen, I am not here the advocate of the North; but I
am here the friend, the firm friend, and lover of the South and her
institutions, and for this reason I speak thus plainly and faithfully for
yours, mine, and every other man’s interest, the words of truth and
soberness), of which I wish you to judge, and I will only state facts
which are clear and undeniable, and which now stand as records
authentic in the history of our country. When we of the South
demanded the slave-trade, or the importation of Africans for the
cultivation of our lands, did they not yield the right for twenty years?
When we asked a three-fifths representation in Congress for our
slaves, was it not granted? When we asked and demanded the return
of any fugitive from justice, or the recovery of those persons owing
labor or allegiance, was it not incorporated in the Constitution, and
again ratified and strengthened by the Fugitive Slave Law of 1850?
But do you reply that in many instances they have violated this
compact, and have not been faithful to their engagements? As
individual and local communities, they may have done so; but not by
the sanction of Government; for that has always been true to
Southern interests. Again, gentlemen, look at another act: when we
have asked that more territory should be added, that we might
spread the institution of slavery, have they not yielded to our
demands in giving us Louisiana, Florida and Texas, out of which four
States have been carved, and ample territory for four more to be
added in due time, if you by this unwise and impolitic act do not
destroy this hope, and perhaps, by it lose all, and have your last slave
wrenched from you by stern military rule, as South America and
Mexico were; or by the vindictive decree of a universal
emancipation, which may reasonably be expected to follow?
But, again, gentlemen, what have we to gain by this proposed
change of our relation to the General Government? We have always
had the control of it, and can yet, if we remain in it, and are as united
as we have been. We have had a majority of the Presidents chosen
from the South; as well as the control and management of most of
those chosen from the North. We have had sixty years of Southern
Presidents to their twenty-four, thus controlling the Executive
department. So of the Judges of the Supreme Court, we have had
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