A control function approach to estimating switching regression models with endogenous explanatory variables and endogenous switching

Irina Murtazashvili and Jeffrey Wooldridge

Journal of Econometrics, 2016, vol. 190, issue 2, 252-266

Abstract: We derive simple, multi-step estimation methods for a linear model with heterogeneous coefficients when there are both continuous and discrete endogenous explanatory variables. We consider both cross-sectional and panel data settings. When we extend our model to panel data, we use the Chamberlain–Mundlak device to allow heterogeneity to be correlated with time-varying explanatory variables. We apply the panel data methods we propose to estimation of a housing budget share equation where a homeownership dummy variable plays the role of the endogenous regime, and total expenditure plays the role of a continuous endogenous explanatory variable. We find that the constant coefficient model seems sufficient, and that the estimation methods we propose produce rather plausible estimates of the model parameters.

Keywords: Random coefficient model; Average treatment effect; Control function approach (search for similar items in EconPapers)
JEL-codes: C23 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:190:y:2016:i:2:p:252-266

DOI: 10.1016/j.jeconom.2015.06.014

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