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Indirect estimation of linear models with ordinal regressors: A Monte Carlo study and some empirical illustrations

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  • Kukuk, Martin

Abstract

This paper investigates the effects of ordinal regressors in linear regression models. Each ordered categorical variable is interpreted as a rough measurement of an underlying continuous variable as it is often done in microeconometrics for the dependent variable. It is shown that using ordinal indicators only leads to correct answers in a few special cases. In most situations, the usual estimators are biased. In order to estimate the parameters of the model consistently, the indirect estimation procedure suggested by Gourieroux et al. (1993) is applied. To demonstrate this method, first a simulation study is performed and then in a second step, two real data sets are used. In the latter case, continuous regressors are transformed into categorical variables to study the behavior of the estimation procedure. In general, the indirect estimators lead to adequate results.

Suggested Citation

  • Kukuk, Martin, 1998. "Indirect estimation of linear models with ordinal regressors: A Monte Carlo study and some empirical illustrations," Tübinger Diskussionsbeiträge 155, University of Tübingen, School of Business and Economics.
    • Handle: RePEc:zbw:tuedps:155
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    Citations

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    Cited by:

    1. Manfred Stadler & Rüdiger Wapler, 2004. "Endogenous Skilled-biased Technological Change and Matching Unemployment," Journal of Economics, Springer, vol. 81(1), pages 1-24, January.
    2. Martin Kukuk & Manfred Stadler, 2001. "Financing Constraints and the Timing of Innovations in the German Services Sector," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 28(3), pages 277-292, September.
    3. Stadler, Manfred, 2003. "Innovation and growth: The role of labor-force qualification," Tübinger Diskussionsbeiträge 255, University of Tübingen, School of Business and Economics.

    More about this item

    Keywords

    Microeconometrics; Exogenous Variables with Ordinal Scale; Latent Variables; Indirect Estimation;
    All these keywords.

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics

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