IV Estimation in the presence of serially correlated regressors and disturbance terms

Chang-Jin Kim, Donggeun Kim, Geun Hye Yang

Research output: Contribution to journalArticle

Abstract

We present a unified framework to solve the endogeneity problem in time-series regression models with serially a correlated disturbance term with ARMA(p,q) dynamics. Our focus is on the case in which lagged regressors are used as instrumental variables. The control function approach provides us with the solution to the problem. Besides, it provides us with an easy method for testing for endogeneity. Our Monte Carlo experiments confirm that the proposed two-step estimation procedure and the proposed test of endogeneity perform well for a sample size as small as 250.

Original languageEnglish
Pages (from-to)56-70
Number of pages15
JournalJournal of Economic Theory and Econometrics
Volume20
Issue number3
Publication statusPublished - 2009 Sep 1

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Keywords

  • Alternative two-step procedure
  • Autoregressive disturbance term
  • Endogeneity
  • Generated regressors
  • IV Estimation

ASJC Scopus subject areas

  • Economics and Econometrics

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