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Semiparametric Varying Coefficient Models with Endogenous Covariates

Author

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  • Samuele CENTORRINO
  • Jeffrey S. RACINE

Abstract

The semiparametric varying coefficient model is used in a wide range of applications. However, the traditional specification does not account for endogenous covariates, which restricts its application. In this paper we consider the estimation of semiparametric varying coefficient models when the functional coefficients may contain (continuous) endogenous covariates thereby extending the reach of this flexible and powerful model. We provide theoretical underpinnings, assess finite-sample performance via simulations, and showcase its practical appeal via an empirical application that examines the degree to which returns to education factor into the documented growing disparity between more and less educated workers.

Suggested Citation

  • Samuele CENTORRINO & Jeffrey S. RACINE, 2017. "Semiparametric Varying Coefficient Models with Endogenous Covariates," Annals of Economics and Statistics, GENES, issue 128, pages 261-295.
  • Handle: RePEc:adr:anecst:y:2017:i:128:p:261-295
    DOI: 10.15609/annaeconstat2009.128.0261
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    References listed on IDEAS

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    More about this item

    Keywords

    Semiparametric; Varying Coefficients; Endogeneity; Instrumental Variables; Regularization; Petrov-Garlekin; Sieves; Returns to Education.;

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education

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