Run IV/2SLS with many levels of fixed effects (i.e. ivreg2+reghdfe)

This package integrates reghdfe into ivreg2, through an absorb() option. This allows IV/2SLS regressions with multiple levels of fixed effects.

Comparison with other commands

As seen in the table below, ivreghdfe is recommended if you want to run IV/LIML/GMM2S regressions with fixed effects, or run OLS regressions with advanced standard errors (HAC, Kiefer, etc.)

Commandregressaregreghdfeivreg2ivreghdfe
Models:OLSOLSOLSOLS, IV, LIML, GMM2S, CUEOLS, IV, LIML, GMM2S (not CUE!)
Fixed effects?-One-wayMulti-way-Multi-way
Cluster SE?One-wayOne-wayMulti-wayTwo-wayTwo-way
Additional SEs:---AC, HAC, Kiefer, Driscol-Kraay, etc.AC, HAC, Kiefer, Driscol-Kraay, etc.
(Speed) Time without FEs:1x-2x3.7x4.3x
(Speed) Time with one FE:-6.3x2.1x-4.6x

(Benchmark run on Stata 14-MP (4 cores), with a dataset of 4 regressors, 10mm obs., 100 clusters and 10,000 FEs)

Installation

ivreghdfe requires three packages: ivreg2, reghdfe (version 5.x) and ftools. Run the lines below to install everything you might possibly need:

* Install ftools (remove program if it existed previously)cap ado uninstall ftoolsnet install ftools, from("https://raw.githubusercontent.com/sergiocorreia/ftools/master/src/")* Install reghdfecap ado uninstall reghdfenet install reghdfe, from("https://raw.githubusercontent.com/sergiocorreia/reghdfe/master/src/")* Install boottest (Stata 11 and 12)if (c(version)<13) cap ado uninstall boottestif (c(version)<13) ssc install boottest* Install moremata (sometimes used by ftools but not needed for reghdfe)cap ssc install moremata* Install ivreg2, the core packagecap ado uninstall ivreg2ssc install ivreg2* Finally, install this packagecap ado uninstall ivreghdfenet install ivreghdfe, from(https://raw.githubusercontent.co ... reghdfe/master/src/)

If you are in a server, you can also download the zipfile and install it locally:

cap ado uninstall ivreghdfenet install ivreghdfe, from(c:\git\ivreghdfe)Advice

This code just modifies ivreg2 adding an absorb() option that uses reghdfes Mata functions (see this link for the line-by-line differences). When used, absorb() will also activate the small, noconstant and nopartialsmall options of ivreg2 (basically to force small sample adjustments, which are required as we might have a substantial number of fixed effects).

If you need to pass optimization options directly to reghdfe (e.g. tolerance, choice of transform, etc.) you can do that as a suboption of absorb():

sysuse auto, clearivreghdfe price weight (length=gear), absorb(turn trunk, tol(1e-6) accel(sd))

This is gives the same result as using the old version of reghdfe (but slower):

reghdfe price weight (length=gear), absorb(turn trunk) tol(1e-6) accel(sd) old
Residuals

To save residuals, do this:

sysuse autoivreghdfe price weight, absorb(trunk, resid(myresidname))

Notice the resid() option within absorb. If you call it without parenthesis, residuals will be saved in the variable _reghdfe_resid.

You can also use the other predict options of reghdfe, such as d:

predict d, d