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IV Estimation in the presence of serially correlated regressors and disturbance terms
- Authors
- Kim, C.-J.; Kim, D.; Yang, G.-H.
- Issue Date
- 2009
- Keywords
- Alternative two-step procedure; Autoregressive disturbance term; Endogeneity; Generated regressors; IV Estimation
- Citation
- Journal of Economic Theory and Econometrics, v.20, no.3, pp.56 - 70
- Indexed
- SCOPUS
KCI
- Journal Title
- Journal of Economic Theory and Econometrics
- Volume
- 20
- Number
- 3
- Start Page
- 56
- End Page
- 70
- ISSN
- 1229-2893
- 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.
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