Amsterdam Econometrics Seminars and Workshop Series

Speaker(s)
Andrew Pua (University of Amsterdam)
Date
Friday, 11 December 2015
Location
Amsterdam

Extending the simultaneous equations approach to jointly determined discrete outcomes has proved to be challenging. One has to impose the so-called coherency condition to guarantee the existence of a unique reduced form. These conditions effectively convert a model where the endogenous variables are jointly determined into a model that is triangular or recursive. In the spirit of a suggestion by Lewbel (2007), I propose using panel data to decide how the coherency condition will hold without restricting error supports or imposing triangularity. Furthermore, incidental parameter biases are avoided and time-invariant unobserved heterogeneity can now be thought of as an indicator of the direction of causality between the discrete outcomes. Finally, I apply the proposal and revisit the model of employment conditions and borrowing constraints estimated by Hajivassiliou and Ioannides (2007).