Estimating endogenous switching regression model with a flexible parametric distribution function: application to Korean housing demand

Abstract

This study introduces Johnson's S_U -normal distribution which can accommodate the flexibility of true error distribution to obtain consistent estimates in an endogenous switching regression model. Simulation results indicate that the S_U -normal model outperforms the normal model for the consistency of estimators when the error distribution is nonnormal. Korean housing demand model estimated by the S_U -normal model also outperforms the normal model in terms of parameter estimates and graphical predictions.

Acknowledgement

This work was supported by the faculty research fund of Konkuk University in 2007.

Notes

¹ A few exceptions are Lee (1982, 1983).

² Johnson (1949b) introduced bivariate distributions that can be constructed on the basis of four univariate distributions- the S_U , S_L , S_B and normal distribution.

³ Kookmin Bank (2002).

⁴ We excluded the households paying a monthly rental fee because less than 5% of the surveyed households used the rental system.

⁵ We carried out the estimation procedure using GAUSS CML-library with Newton–Raphson algorithm.

⁶ Except for the AGE variable, the other explanatory variables are fixed as the sample means.

⁷ Kookmin Bank (2002).

⁸ The relationship between ρ₁₂ and is described in Section II. Therefore, once the true ρ is given, the true ρ* can be computed.