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st: Simultaneous equation with no endogeneity?

From   Natascha Nisic <>
Subject   st: Simultaneous equation with no endogeneity?
Date   Wed, 14 Mar 2007 12:39:50 +0100

After testing for endogeneity in a simultanous equation framework, I found
no endogeneity in the data in both equations. But what does this mean theoretically?

I examined the endogeneous relationship of income and commuting to the workplace, supposing that longer distances of commuting lead to higher income (because of bigger access to labour markets), whereas higher income makes commuting affordable. So I had two structural equations: one for income and one for commuting distance. When estimating these two equations separately by OLS I get a highly significant positive effect of income on commuting and of commuting on income. Then I used IV-Regressions to estimate the simultaneous equation model. But when testing for endogeneity the results of the test show that there is no endogeneity in both equations. Moreover neither of the two instrumented variables has an effect anymore in the IV-Regression.

I dont't know how to interpret these results, as it seems that empirically there is no endogeneous relationship, but theoretically there is? (Of course my instrumental variables might be bad, but supposed they are not, what do these results mean?)

Thanks a lot.

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