Elsevier

Economics Letters

Volume 100, Issue 1, July 2008, Pages 138-142
Economics Letters

Conceptual frameworks and experimental design in simultaneous equations

https://doi.org/10.1016/j.econlet.2007.12.012Get rights and content

Abstract

Using examples drawn from two important papers in the recent literature on weak instruments, we demonstrate how observed experimental outcomes can be profoundly influenced by the different conceptual frameworks underlying two experimental designs commonly employed when simulating simultaneous equations.

Section snippets

Simultaneous equations and experimental design

The classical linear simultaneous equations model has enjoyed renewed interest of late as a consequence of the problems associated with inference in weakly-identified models; see, for example, the papers discussed by Chesher et al. (2007). Several authors have addressed the specific problem of inference on the coefficient of an endogenous regressor in a structural equation and various suggestions have been made about how to proceed in such circumstances. Using invariance principles and similar

Discussion

Let us state at the outset that we are not suggesting that either ED1 or ED2 is incorrect. Nevertheless, when faced with alternative specifications one is required to make choices. A preference for the specification that is comprised of both (i) a structural equation and (ii) the complete reduced form rather than just a subset of the reduced form, might be justified on two grounds. First, the overall reduced form is an unrestricted regression and so the accompanying conditional distribution of [

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Cited by (4)

  • Inference in the presence of weak instruments: A selected survey

    2012, Foundations and Trends in Econometrics

We thank both Adrian Pagan and an anonymous referee for useful feedback on an earlier version of this note, and acknowledge the support of the Australian Research Council Grant DP0771445.

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