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Simultaneous Equations with Error Components

In: A Companion to Econometric Analysis of Panel Data

Author

Listed:
  • Badi H. Baltagi

    (Syracuse University, Department of Economics and Center for Policy Research)

Abstract

Endogeneity of the right-hand regressors is a serious problem in econometrics. By endogeneity, we mean the correlation of the right-hand side regressors and the disturbances. Endogeneity causes inconsistency of the usual OLS estimates and requires instrumental variable methods like two-stage least squares (2SLS) to obtain consistent parameter estimates. The applied literature is full of examples of endogeneity: demand and supply equations for labor, money, goods, and commodities, to mention a few. We assume that the reader is familiar with the identification and estimation of a single equation and a system of simultaneous equations. In this chapter, we focus on the estimation of simultaneous equations using panel data.

Suggested Citation

  • Badi H. Baltagi, 2026. "Simultaneous Equations with Error Components," Springer Texts in Business and Economics, in: A Companion to Econometric Analysis of Panel Data, edition 0, chapter 7, pages 177-234, Springer.
    • Handle: RePEc:spr:sptchp:978-3-032-09687-6_7
    DOI: 10.1007/978-3-032-09687-6_7
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