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20 Aug 2019
Suppose that we are interested in the partial effect of a change in z1 on E[y1|z1] using the two-equation system
y1 = γ12y2 + δ11z1 + u1
y2 = γ21y1 + δ22z2 + δ23z3 + u2
(a) Solve for the reduced form E[y1|z].
(b) Consider three strategies for estimating the partial effect of interest: (1) estimate Equation 1 only to estimate δ11 as the partial effect; (2) estimate the system and substitute the structural parameter estimates into the formulas for the reduced form parameters; and (3) estimate the reduced form parameters directly. Which strategy would you recommend?
Suppose that we are interested in the partial effect of a change in z1 on E[y1|z1] using the two-equation system
y1 = γ12y2 + δ11z1 + u1
y2 = γ21y1 + δ22z2 + δ23z3 + u2
(a) Solve for the reduced form E[y1|z].
(b) Consider three strategies for estimating the partial effect of interest: (1) estimate Equation 1 only to estimate δ11 as the partial effect; (2) estimate the system and substitute the structural parameter estimates into the formulas for the reduced form parameters; and (3) estimate the reduced form parameters directly. Which strategy would you recommend?
Hubert KochLv2
23 Aug 2019
