Flexible nonlinear inference with endogenous explanatory variables

Research output: Contribution to journalArticle

Abstract

Hamilton's (2001) flexible nonlinear inference is not valid with endogenous explanatory variables. Hence, this paper proposes a framework to approach endogeneity problems in the flexible nonlinear inference. We develop two estimation procedures, namely, joint estimation and two-step estimation procedures. The parameters in both models can be estimated by maximum likelihood or numerical Bayesian method. Our approach can be used in handling endogeneity and nonlinearity in the oil-macro relationship or in the monetary policy rule.

Original languageEnglish
Pages (from-to)311-324
Number of pages14
JournalSeoul Journal of Economics
Volume28
Issue number3
Publication statusPublished - 2015

Keywords

  • Control function approach
  • Endogeneity
  • Nonlinear flexible inference
  • Two-step procedure

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

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