#StackBounty: #r #goodness-of-fit #r-squared #instrumental-variables #endogeneity Can I ignore R-squared value of one when I am using i…

Bounty: 50

I am running an instrumental variable regression using ‘ivreg’ command in R program. I am using a lagged dependent variable and find all my validity tests are satisfied only except the R-squared value which is one. May I know whether I can ignore this R-squared value which is one without reporting? If not, what is an alternative manner to resolve this issue? The code is as below:

    > Y_ivreg=ivreg(Y~lag(Y,1)+x1+x2+x3+x4+x5+x6+x7+x8|x9+x10+x11+x12+x3+x4+x6+x7+x8,data=DATA2)
    > summary(Y_ivreg,diagnostics=TRUE)

    Call:
    ivreg(formula = Y ~ lag(Y, 1) + x1 + x2 + x3 + x4 + 
        x5 + x6 + x7 + x8 | x9 + x10 + 
        x11 + x12 + x3 + x4 + x6 + x7 + 
        x8, data = DATA2)

    Residuals:
           Min         1Q     Median         3Q        Max 
    -5.895e-14  1.998e-15  2.476e-14  3.364e-14  6.517e-14 

        Coefficients:
            Estimate Std. Error      t value    Pr(>|t|)
(Intercept)   5.896e-13  4.433e-14  1.330e+01  < 2e-16 ***
  lag(Y, 1)   1.000e+00  3.999e-14  2.501e+13  < 2e-16 ***
        x1    1.414e-14  1.488e-15  9.501e+00  < 2e-16 ***
        x2    2.515e-15  2.328e-16  1.080e+01  < 2e-16 ***
        x3   -2.434e-14  2.759e-15 -8.822e+00  < 2e-16 ***
        x4   -1.925e-12  1.972e-13 -9.764e+00  < 2e-16 ***
        x5    2.055e-14  3.955e-15  5.195e+00 2.17e-07 ***
        x6    2.565e-17  3.230e-18  7.940e+00 2.72e-15 ***
        x7   -2.147e-15  2.427e-16 -8.846e+00  < 2e-16 ***
        x8    4.688e-16  1.900e-16  2.468e+00   0.0136 *

    Diagnostic tests:
                                df1 df2  statistic  p-value    
    Weak instruments (lag(Y, 1))  4 3358    455.18  <2e-16 ***
    Weak instruments (x1)         4 3358    998.12  <2e-16 ***
    Weak instruments (x2)         4 3358   1077.84  <2e-16 ***
    Weak instruments (x5)         4 3358    913.43  <2e-16 ***
    Wu-Hausman                    4 3354      0.78   0.538    
    Sargan                        0   NA        NA      NA    
    ---
    Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1

    Residual standard error: 3.497e-14 on 3358 degrees of freedom
    Multiple R-Squared:     1,      Adjusted R-squared:     1 
    Wald test: 5.536e+26 on 9 and 3358 DF,  p-value: < 2.2e-16 


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