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Asymptotic properties of endogeneity corrections using nonlinear transformations

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  • Jörg Breitung
  • Alexander Mayer
  • Dominik Wied

Abstract

SummaryThis paper studies the asymptotic properties of endogeneity corrections based on nonlinear transformations without external instruments, which were originally proposed by Park and Gupta (2012) and have become popular in applied research. In contrast to the original copula-based estimator, our approach is based on a nonparametric control function and does not require a conformably specified copula. Moreover, we allow for exogenous regressors, which may be (linearly) correlated with the endogenous regressor(s). We establish consistency, asymptotic normality, and validity of the bootstrap for the unknown model parameters. An empirical application on wage data of the US Current Population Survey demonstrates the usefulness of the method.

Suggested Citation

  • Jörg Breitung & Alexander Mayer & Dominik Wied, 2024. "Asymptotic properties of endogeneity corrections using nonlinear transformations," The Econometrics Journal, Royal Economic Society, vol. 27(3), pages 362-383.
    • Handle: RePEc:oup:emjrnl:v:27:y:2024:i:3:p:362-383.
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    File URL: http://hdl.handle.net/10.1093/ectj/utae002
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    References listed on IDEAS

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    1. Christoph Rothe & Dominik Wied, 2013. "Misspecification Testing in a Class of Conditional Distributional Models," Journal of the American Statistical Association, Taylor & Francis Journals, vol. 108(501), pages 314-324, March.
    2. Colm Harmon & Hessel Oosterbeek, 2000. "The Returns to Education: A Review of Evidence, Issues and Deficiencies in the Literature," CEE Discussion Papers 0005, Centre for the Economics of Education, LSE.
    3. Sungho Park & Sachin Gupta, 2012. "Handling Endogenous Regressors by Joint Estimation Using Copulas," Marketing Science, INFORMS, vol. 31(4), pages 567-586, July.
    4. Robert J. Lemke & Isaac C. Rischall, 2003. "Skill, parental income, and IV estimation of the returns to schooling," Applied Economics Letters, Taylor & Francis Journals, vol. 10(5), pages 281-286, April.
    5. Roger Koenker & Zhijie Xiao, 2002. "Inference on the Quantile Regression Process," Econometrica, Econometric Society, vol. 70(4), pages 1583-1612, July.
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    Cited by:

    1. Rouven E. Haschka, 2024. "Endogeneity in stochastic frontier models with 'wrong' skewness: copula approach without external instruments," Statistical Methods & Applications, Springer;Società Italiana di Statistica, vol. 33(3), pages 807-826, July.
    2. Wied, Dominik, 2024. "Semiparametric distribution regression with instruments and monotonicity," Labour Economics, Elsevier, vol. 90(C).

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