S-Space College of Social Sciences (사회과학대학) Institute of Economics Research (경제연구소) Seoul Journal of Economics (SJE) Seoul Journal of Economics vol.28 no.1~4 (2015)
Flexible Nonlinear Inference with Endogenous Explanatory Variables
- Issue Date
- Seoul Journal of Economics, Vol.28 No.3, pp. 311-323
- Control function approach ; Endogeneity ; Nonlinear flexible inference ; Two-step procedure
- Hamiltons (2001) flexible nonlinear inference is not valid with endogenous explanatory variables. Hence, this paper proposes a framework to approach endogeneity problems in the flexible nonlinear inference. We evelop two estimation procedures, namely, joint estimation and two-step estimation procedures. The parameters in
both models can be estimated by maximum likelihood or numerical Bayesian method. Our approach can be used in handling endogeneity and nonlinearity in the oil-macro relationship or in the monetary policy rule.