I was trying to estimate an instrumental variables regression using individual fixed effects in the second stage. However, I do not want to use these fixed effects in the first stage. I know that the absorb commands includes the fixed effects in both the first and second stage. Is there an additional absorb command to only use the fixed effects in the second stage (but not the first stage)?
My current alternative is to use categorical variables (the "i." command), which is quite slow as it calculates the standard errors for these fixed effects. Another alternative is to demean the dependent variable within the fixed effect groups, but the corresponding standard error adjustment for degrees of freedom becomes quite complicated, especially when clustering standard errors.
Hello,
I was trying to estimate an instrumental variables regression using individual fixed effects in the second stage. However, I do not want to use these fixed effects in the first stage. I know that the absorb commands includes the fixed effects in both the first and second stage. Is there an additional absorb command to only use the fixed effects in the second stage (but not the first stage)?
My current alternative is to use categorical variables (the "i." command), which is quite slow as it calculates the standard errors for these fixed effects. Another alternative is to demean the dependent variable within the fixed effect groups, but the corresponding standard error adjustment for degrees of freedom becomes quite complicated, especially when clustering standard errors.
Any suggestions would be greatly appreciated.
Thank you!