SIMPLE ESTIMATION OF AN ENDOGENOUS SWITCHING REGRESSION MODEL WITH ENDOGENOUS CENSORED REGRESSORS

10.6292/AFPF.202212_(10).0001

Jen-Che Liao

Average Treatment Effects ； Endogenous Censored Regressors ； Endogenous Switching Regime Models ； Instrumental Variables

Advances in Financial Planning and Forecasting

10期（2022 / 12 / 01）

1 - 19

英文

This study proposes a simple three-step estimation method for a switching regime model with endogenous censored regressors. The model accommodates two types of endogeneity-endogenous switching and endogenous censored regressors-which occur often and simultaneously in many important empirical settings. For example, financial economists are interested in the relationship between corporate financial performance, research and development (R&D) activities and export decisions, where the censored R&D expenditures may contain many zero values that may represent genuine zeros, non-reporting, or other mismeasurement. We suggest a simple parametric estimation procedure that involves probit, Tobit, and instrumental variable estimations, which are commonly used in practice and straightforward to implement using standard statistical software. A small-scale simulation experiment illustrates the usefulness of our approach.

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