Relaxing the Strict Exogeneity Assumption in a Dynamic Random Probit Model
AbstractThis paper is relaxing the strict exogeneity assumption in a dynamic random probit model to allow for the possibility of feedback effects. We take an MLE approach and specify a marginal distribution for the not strictly exogenous variable in question. Using a log-likelihood function similar to Wooldridge (2000) we propose two estimation strategies depending on what the object of interest is. We show that the parameters can be estimated using either quadrature or simulated maximum likelihood if all we are interested in is the parameters of the model. Subsequently average partial effects can be estimated. However, if we are more interested in knowing the average partial effects and less interested in the parameter estimates themselves, then it is useful to considering the problem as a method of moment problem rather than a MLE. This will allow an easy estimation of the average partial effect and in particular the variance of the APE such that statistical inference is possible. The insight is applied to a large Danish register data set on employment transitions to address the question of true state dependence in unemployment transitions. Moreover, we rise the important question, that a major part of the results in the state dependence literature could be invalid due to ignoring violations of the strict exogeneity assumption.
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Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics in its series CAM Working Papers with number 2003-04.
Length: 27 pages
Date of creation: Dec 2003
Date of revision:
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Web page: http://www.econ.ku.dk/CAM/
More information through EDIRC
unobserved heterogeneity; dynamic random probit; feedback effects; initial condition; state dependence;
Find related papers by JEL classification:
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
- C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
- J2 - Labor and Demographic Economics - - Demand and Supply of Labor
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- Wooldridge, Jeffrey M., 1997. "Multiplicative Panel Data Models Without the Strict Exogeneity Assumption," Econometric Theory, Cambridge University Press, vol. 13(05), pages 667-678, October.
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Open Access publications from Tilburg University
urn:nbn:nl:ui:12-5573980, Tilburg University.
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