Endogeneity of the right-hand regressors is a serious problem in econometrics. By endogeneity, we mean the correlation of the right-hand side regressors and the disturbances. Endogeneity causes inconsistency of the usual OLS estimates and requires instrumental variable methods like two-stage least squares (2SLS) to obtain consistent parameter estimates. The applied literature is full of examples of endogeneity: demand and supply equations for labor, money, goods, and commodities, to mention a few. We assume that the reader is familiar with the identification and estimation of a single equation and a system of simultaneous equations. In this chapter, we focus on the estimation of simultaneous equations using panel data.

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Simultaneous Equations with Error Components

  • Badi H. Baltagi

摘要

Endogeneity of the right-hand regressors is a serious problem in econometrics. By endogeneity, we mean the correlation of the right-hand side regressors and the disturbances. Endogeneity causes inconsistency of the usual OLS estimates and requires instrumental variable methods like two-stage least squares (2SLS) to obtain consistent parameter estimates. The applied literature is full of examples of endogeneity: demand and supply equations for labor, money, goods, and commodities, to mention a few. We assume that the reader is familiar with the identification and estimation of a single equation and a system of simultaneous equations. In this chapter, we focus on the estimation of simultaneous equations using panel data.