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