Introductory Econometrics - A Modern Approach - ch16.pptVIP

Economics 20 - Prof. Anderson Simultaneity Simultaneity is a specific type of endogeneity problem in which the explanatory variable is jointly determined with the dependent variable As with other types of endogeneity, IV estimation can solve the problem Some special issues to consider with simultaneous equations models (SEM) Supply and Demand Example Start with an equation you’d like to estimate, say a labor supply function hs = a1w + b1z + u1, where w is the wage and z is a supply shifter Call this a structural equation – it’s derived from economic theory and has a causal interpretatio