Instrumental variables interpretations of FIML and nonlinear FIML
AbstractFIML estimates of a simultaneous equation econometric model can be obtained by iterating to convergence an instrumental variables formula that is perfectly consistent with the intuitive textbook-type interpretation of efficient instruments: instruments for an equation must be uncorrelated with the error term of the equation, but at the same time must have the highest correlation with the explanatory variables. However, if our purpose is to obtain FIML from iterating to convergence some full information instrumental variables, the intuitive textbook-type interpretation of the efficient instruments is not necessarily helpful, and can be too restrictive. The purpose of this paper is to show that, in the full information framework, there is a much wider flexibility in the choice of the instruments. Against intuition, instruments may be not purged enough of correlation with the error term: for example, the instruments for the endogenous variables or functions of endogenous variables included in one equation do not need to be purged of the residuals of equations that are correlated with the given one. Viceversa, instruments can be purged too much: for example, if there are zero covariance restrictions, instruments may be purged also of the estimated residuals of equations uncorrelated with the given one.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 29024.
Date of creation: 04 Sep 1989
Date of revision:
Econometric models; simultaneous equations; full information maximum likelihood; iterative instrumental variables;
Find related papers by JEL classification:
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Brundy, James M & Jorgenson, Dale W, 1971. "Efficient Estimation of Simultaneous Equations by Instrumental Variables," The Review of Economics and Statistics, MIT Press, vol. 53(3), pages 207-24, August.
- Jerry A. Hausman, 1974. "Full Information Instrumental Variables Estimation of Simultaneous Equations Systems," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 4, pages 91-102 National Bureau of Economic Research, Inc.
- Hausman, Jerry A, 1975. "An Instrumental Variable Approach to Full Information Estimators for Linear and Certain Nonlinear Econometric Models," Econometrica, Econometric Society, vol. 43(4), pages 727-38, July.
- Hausman, Jerry A., 1983. "Specification and estimation of simultaneous equation models," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 1, chapter 7, pages 391-448 Elsevier.
- Calzolari, Giorgio & Panattoni, Lorenzo & Weihs, Claus, 1987. "Computational efficiency of FIML estimation," Journal of Econometrics, Elsevier, vol. 36(3), pages 299-310, November.
- Dagenais, Marcel G, 1978. "The Computation of FIML Estimates as Iterative Generalized Least Squares Estimates in Linear and Nonlinear Simultaneous Equations Models," Econometrica, Econometric Society, vol. 46(6), pages 1351-62, November.
- Hausman, Jerry A & Newey, Whitney K & Taylor, William E, 1987.
"Efficient Estimation and Identification of Simultaneous Equation Models with Covariance Restrictions,"
Econometric Society, vol. 55(4), pages 849-74, July.
- J. Hausman & W. Newey & W. Taylor, 1983. "Efficient Estimation and Identification of Simultaneous Equation Models with Covariance Restrictions," Working papers 331, Massachusetts Institute of Technology (MIT), Department of Economics.
- Jerry A. Hausman & Whitney K. Newey & William E. Taylor, 1985. "Efficient Estimation and Identification of Simultaneous Equation Models with Covariance Restrictions," Working papers 369, Massachusetts Institute of Technology (MIT), Department of Economics.
- James M. Brundy & Dale W. Jorgenson, 1971. "Efficient estimation of simultaneous equations by instrumental variables," Working Papers in Applied Economic Theory 3, Federal Reserve Bank of San Francisco.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.