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A control function approach to estimating switching regression models with endogenous explanatory variables and endogenous switching

Listed author(s):
  • Murtazashvili, Irina
  • Wooldridge, Jeffrey M.

We derive simple, multi-step estimation methods for a linear model with heterogeneous coefficients when there are both continuous and discrete endogenous explanatory variables. We consider both cross-sectional and panel data settings. When we extend our model to panel data, we use the Chamberlain–Mundlak device to allow heterogeneity to be correlated with time-varying explanatory variables. We apply the panel data methods we propose to estimation of a housing budget share equation where a homeownership dummy variable plays the role of the endogenous regime, and total expenditure plays the role of a continuous endogenous explanatory variable. We find that the constant coefficient model seems sufficient, and that the estimation methods we propose produce rather plausible estimates of the model parameters.

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File URL: http://www.sciencedirect.com/science/article/pii/S0304407615001839
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Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 190 (2016)
Issue (Month): 2 ()
Pages: 252-266

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Handle: RePEc:eee:econom:v:190:y:2016:i:2:p:252-266
DOI: 10.1016/j.jeconom.2015.06.014
Contact details of provider: Web page: http://www.elsevier.com/locate/jeconom

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