Simultaneous-equation estimation with no instrumental variables

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 letter outlines a maximum-likelihood method that does not require instrumental variables; it is applied to the estimation of a demand function and an Engel curve.

KEYWORDS:

• Simultaneous equation estimation
• instrumental variable
• two-stage least squares
• limited-information maximum likelihood
• canonical correlation

JEL CLASSIFICATION:

• C3

Disclosure statement

No potential conflict of interest was reported by the author.