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Computing 3SLS Solutions of Simultaneous Equation Models with Possible Singular Variance-Covariance Matrix

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Author Info
Erricos J. Kontoghiorghes () (Centre for Mathematical Trading and Finance and Centre for Insurance and Investment City University Business School, London)

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Abstract

In simultaneous equation models (SEMs) the assumption that the covariance matrix of the disturbances is non-singular cannot always be made. For example, allocation models and models with precise observations which may imply linear constraints on the parameters, have singular disturbance covariance matrix. The solution of such models can be obtained using the expensive computation of generalized inverse which can lead to loss of accuracy. The main motivation of this work is to provide computational strategies for solving an alternative formulation of the 3SLS estimation problem, where the disturbance covariance matrix is not required to be non- singular.

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 1996 with number _032.

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Handle: RePEc:sce:scecf6:_032

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Postal: Department of Econometrics, University of Geneva, 102 Bd Carl-Vogt, 1211 Geneva 4, Switzerland
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  1. Kontoghiorghes, E. J. & Clarke, M. R. B., 1995. "An alternative approach for the numerical solution of seemingly unrelated regression equations models," Computational Statistics & Data Analysis, Elsevier, vol. 19(4), pages 369-377, April. [Downloadable!] (restricted)
  2. Court, R H, 1974. "Three Stage Least Squares and Some Extensions where the Structural Disturbance Covariance Matrix May Be Singular," Econometrica, Econometric Society, vol. 42(3), pages 547-58, May. [Downloadable!] (restricted)
  3. Narayanan, R, 1969. "Computation of Zellner-Theil's Three Stage Least Squares Estimates," Econometrica, Econometric Society, vol. 37(2), pages 298-306, April. [Downloadable!] (restricted)
  4. Belsley, David A, 1992. "Paring 3SLS Calculations Down to Manageable Proportions," Computer Science in Economics & Management, Springer, vol. 5(3), pages 157-69, August.
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