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Asymptotic properties of endogeneity corrections using nonlinear transformations

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  • Jörg Breitung
  • Alexander Mayer
  • Dominik Wied

Abstract

SummaryThis paper studies the asymptotic properties of endogeneity corrections based on nonlinear transformations without external instruments, which were originally proposed by Park and Gupta (2012) and have become popular in applied research. In contrast to the original copula-based estimator, our approach is based on a nonparametric control function and does not require a conformably specified copula. Moreover, we allow for exogenous regressors, which may be (linearly) correlated with the endogenous regressor(s). We establish consistency, asymptotic normality, and validity of the bootstrap for the unknown model parameters. An empirical application on wage data of the US Current Population Survey demonstrates the usefulness of the method.

Suggested Citation

  • Jörg Breitung & Alexander Mayer & Dominik Wied, 2024. "Asymptotic properties of endogeneity corrections using nonlinear transformations," The Econometrics Journal, Royal Economic Society, vol. 27(3), pages 362-383.
    • Handle: RePEc:oup:emjrnl:v:27:y:2024:i:3:p:362-383.
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    File URL: http://hdl.handle.net/10.1093/ectj/utae002
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    Cited by:

    1. Wied, Dominik, 2024. "Semiparametric distribution regression with instruments and monotonicity," Labour Economics, Elsevier, vol. 90(C).
    2. Benjamin D. Liengaard & Jan-Michael Becker & Mikkel Bennedsen & Phillip Heiler & Luke N. Taylor & Christian M. Ringle, 2025. "Dealing with regression models’ endogeneity by means of an adjusted estimator for the Gaussian copula approach," Journal of the Academy of Marketing Science, Springer, vol. 53(1), pages 279-299, January.
    3. Rouven E. Haschka, 2024. "Endogeneity in stochastic frontier models with 'wrong' skewness: copula approach without external instruments," Statistical Methods & Applications, Springer;Società Italiana di Statistica, vol. 33(3), pages 807-826, July.
    4. Rouven E. Haschka, 2024. "“Wrong” skewness and endogenous regressors in stochastic frontier models: an instrument-free copula approach with an application to estimate firm efficiency in Vietnam," Journal of Productivity Analysis, Springer, vol. 62(1), pages 71-90, August.

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