Econometric Theory

Table of Contents - June 2012 - Volume 28, Issue 03  

MISCELLANEA

MEASUREMENT ERRORS AND CENSORED STRUCTURAL LATENT VARIABLES MODELS

Songnian Chena1, Cheng Hsiaoa2 c1 and Liqun Wanga3

a1 Hong Kong University of Science and Technology

a2 University of Southern California, Nanyang Technological University and City University of Hong Kong

a3 University of Manitoba

Abstract

We consider censored structural latent variables models where some exogenous variables are subject to additive measurement errors. We demonstrate that overidentification conditions can be exploited to provide natural instruments for the variables measured with errors, and we propose a two-stage estimation procedure. The first stage involves substituting available instruments in lieu of the variables that are measured with errors and estimating the resulting reduced form parameters using consistent censored regression methods. The second stage obtains structural form parameters using the conventional linear simultaneous equations model estimators.

Correspondence:

c1 Address correspondence to Cheng Hsiao, Dept. of Economies, University of Southern California, Los Angeles, CA 90089-0253, USA; e-mail: chsiao@usc.edu.

Footnotes

We are deeply appreciative of the very helpful comments of a co-editor and two referees. We also thank T. Amemiya for helpful comments. This research is partially supported by the Natural Sciences and Engineering Research Council of Canada (NSERC). Part of this work was carried out while the first author was at the National University of Singapore.