Statistical Papers

, Volume 43, Issue 3, pp 379–399

Indirect estimation of (latent) linear models with ordinal regressors A Monte Carlo study and some empirical illustrations

Article

Summary

This paper investigates the effects of ordinal regressors in linear regression models and in limited dependent variable models. Each ordered categorical variable is interpreted as a rough measurement of an underlying continuous variable as it is often done in microeconometrics for the dependent variable. It is shown that using ordinal indicators only leads to correct answers in a few special cases. In most situations, the usual estimators are biased. In order to estimate the parameters of the model consistently, the indirect estimation procedure suggested by Gourieroux et al. (1993) is applied. To demonstrate this method, first a simulation study is performed and then in a second step, two real data sets are used. In the latter case, continuous regressors are transformed into categorical variables to study the behavior of the estimation procedure. The method is extended to the case of limited dependent variable models. In general, the indirect estimators lead to adequate results.

Key Words

Microeconometrics Exogenous Variables with Ordinal Scale Latent Variables Indirect Estimation 

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Copyright information

© Springer-Verlag 2002

Authors and Affiliations

  1. 1.Wirtschaftswissenschaftliche FakultätUniversität TübingenTübingenGermany

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