Download This PaperThe Asymptotics for Panel Models with Common Shocks
Syracuse University Center for Policy Research Working Paper No. 77
57 Pages Posted: 20 Apr 2011
Date Written: February 1, 2006
Abstract
This paper considers models with latent/discrete endogenous regressors and presents a simulation-based two-step (STS) estimator. The endogeneity is corrected by adopting a simulation-based control function approach. The first step consists of simulating of the residuals of the reduced-form equation for endogenous regressors. The second step is a regression model (linear, latent or discrete) with the simulated residual as an additional regressor. In this paper we develop the asymptotic theory for the STS estimator and its rate of convergence.
Keywords: Cross-sectional dependence, Common shocks, Nonstationary panel
JEL Classification: C13, C23
Suggested Citation: Suggested Citation
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