Moment Estimation of the Probit Model with an Endogenous Continuous Regressor

Daiji Kawaguchi, Yukitoshi Matsushita and Hisahiro Naito
Additional contact information
Yukitoshi Matsushita: Tokyo Institute of Technology
Hisahiro Naito: University of Tsukuba

The Japanese Economic Review, 2017, vol. 68, issue 1, No 6, 48-62

Abstract: Abstract We propose a generalized method of moments (GMM) estimator with optimal instruments for a probit model that includes a continuous endogenous regressor. This GMM estimator incorporates the probit error and the heteroscedasticity of the error term in the first-stage equation in order to construct the optimal instruments. The estimator estimates the structural equation and the first-stage equation jointly and, based on this joint moment condition, is efficient within the class of GMM estimators. To estimate the heteroscedasticity of the error term of the first-stage equation, we use the k-nearest neighbour (k-nn) non-parametric estimation procedure. Our Monte Carlo simulation shows that in the presence of heteroscedasticity and endogeneity, our GMM estimator outperforms the two-stage conditional maximum likelihood estimator. Our results suggest that in the presence of heteroscedasticity in the first-stage equation, the proposed GMM estimator with optimal instruments is a useful option for researchers.

Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://link.springer.com/10.1111/jere.12091 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
Journal Article: Moment Estimation of the Probit Model with an Endogenous Continuous Regressor (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:jecrev:v:68:y:2017:i:1:d:10.1111_jere.12091

Ordering information: This journal article can be ordered from
https://www.springer.com/journal/42973

DOI: 10.1111/jere.12091

Access Statistics for this article

The Japanese Economic Review is currently edited by Michihiro Kandori

More articles in The Japanese Economic Review from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().