Correcting Standard Errors in Two‐stage Estimation Procedures with Generated Regressands*
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Feenstra and Hanson [NBER Working Paper No. 6052 (1997)] propose a procedure to correct the standard errors in a two‐stage regression with generated dependent variables. Their method has subsequently been used in two‐stage mandated wage models [Feenstra and Hanson, Quarterly Journal of Economics (1999) Vol. 114, pp. 907–940; Haskel and Slaughter, The Economic Journal (2001) Vol. 111, pp. 163–187; Review of International Economics (2003) Vol. 11, pp. 630–650] and for the estimation of the sector bias of skill‐biased technological change [Haskel and Slaughter, European Economic Review (2002) Vol. 46, pp. 1757–1783]. Unfortunately, the proposed correction is negatively biased (sometimes even resulting in negative estimated variances) and therefore leads to overestimation of the inferred significance. We present an unbiased correction procedure and apply it to the models reported by Feenstra and Hanson (1999) and Haskel and Slaughter (2002).
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The standard errors for the two-stage estimators need to be adjusted to account for the fact that the dependent variable in the second stage is generated using estimates obtained from the first stage.
“The standard errors for the two-stage estimators need to be adjusted to account for the fact that the dependent variable Y gpit -ˆ λ g -ˆ γ p in the second-stage is generated using estimates obtained from the first stage of the procedure (Dumont et al., 2005).”
From Two-stage differences in differences (2022) · cites this paper as Dumont et al., 2005
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A method of moments interpretation of sequential estimators
Newey, W. K. (1984) · Economics Letters · doi:10.1016/0165-1765(84)90083-1 · Cited by 331 · see citing works
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Two-stage differences in differences
Gardner, J. (2022) · arXiv · doi:10.48550/arxiv.2207.05943 · Cited by 333 · see citing works
- Authors
- Dumont, M., Rayp, G., Thas, O., & Willemé, P.
- Affiliations
- University of Antwerp (BE)
- Ghent University (BE)
- Corresponding author
- Dumont, Michel
- Rayp, Glenn
- Thas, Olivier
- Willemé, Peter
- Venue
- Oxford Bulletin of Economics and Statistics
- Publisher
- Wiley
- Published
- 2005-05-20
- Volume
- 67
- Issue
- 3
- Pages
- 421-433
- ISSN
- 0305-9049 (ISSN-L)
- 1468-0084
- OpenAlex
- W2064905399
- Cited by
- 44
- References
- 1
- Citations by year
- 2026: 2 · 2025: 1 · 2024: 1 · 2023: 1 · 2022: 1 · 2019: 4 · 2018: 1 · 2017: 2 · 2016: 3 · 2015: 1 · 2014: 1 · 2013: 2 · 2012: 2
- FWCI
- 1.72
- Type
- journal article
- Language
- en
- Open access
- bronze
- doi.org
- Locations
- Oxford Bulletin of Economics and Statistics (publishedVersion)
- Ghent University Academic Bibliography (Ghent University) (submittedVersion)
- Topics
- Physical Sciences › Mathematics › Statistics and Probability › Advanced Causal Inference Techniques
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Spatial and Panel Data Analysis
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Labor market dynamics and wage inequality
- Keywords
- standard error correction, two-stage regression, skill-biased technological change, sector bias
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