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A Note on the Estimation of Simultaneous Equations with Error Components

Badi H. Baltagi and Qi Li
Econometric Theory
Vol. 8, No. 1 (Mar., 1992), pp. 113-119
Stable URL: http://www.jstor.org/stable/3532147
Page Count: 7
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A Note on the Estimation of Simultaneous Equations with Error Components
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Abstract

Baltagi [3] derived 2SLS and 3SLS analogues for a simultaneous equation model with error components. These were denoted by EC2SLS and EC3SLS. More recently, Balestra and Varadharajan-Krishnakumar [1] derived alternative 2SLS and 3SLS analogues; these were denoted by G2SLS and G3SLS. This note explains the relationship between these estimators and shows that the set of instruments employed by Balestra and Varadharajan-Krishnakumar is a subset of those used in Baltagi. In addition this paper shows that for the single equation case the extra set of instruments is redundant and both EC2SLS and G2SLS have the same asymptotic variance--covariance matrix. However, for the system of equations, it can be shown that EC3SLS is asymptotically more efficient than G3SLS.

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