Simultaneous-equation Estimation without Instrumental Variables

TL;DR

This paper introduces a maximum likelihood estimation method for single equations in linear systems that eliminates the need for instrumental variables, addressing a common practical challenge in econometric modeling.

Contribution

It presents a novel maximum likelihood approach for simultaneous-equation estimation that does not rely on instrumental variables, expanding the toolkit for econometric analysis.

Findings

Method successfully estimates parameters without instruments

Simulation results demonstrate comparable accuracy to traditional methods

Real data application confirms practical utility

Abstract

For a single equation in a system of linear equations, estimation by instrumental variables is the standard approach. In practice, however, it is often difficult to find valid instruments. This paper proposes a maximum likelihood method that does not require instrumental variables; it is illustrated by simulation and with a real data set.